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Timken Case Study Essay

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TABLE OF CONTENT Executive summary .................................................................................. 2 1. Introduction.......................................................................................... 3 2. Timken’s Expectations from Torrington .............................................. 3 2.1 Operational Synergies.................................................................... 4 2.2 Financial Synergies ........................................................................ 5 3. Valuation .............................................................................................. 5 4. Debt capital and its effect on Invest grade rating................................ 13 4.1 After …show more content…

According to the researchers the increased value results from an opportunity to utilize a specialized resources which arises solely as a result of the merger (Jensens & Ruback, 1983; Bradle, Desai and Kim , 1983). For creating operational and financial synergies managers believe that two enterprises will be worth more if merged than if operates as two separate entities. Thus, the two companies, A and B: VA+B > VA + VB The principle of Value additively would refute this unless the amalgamation resulted in some form of synergy or more effective utilisation of the assets of the combined companies. According to this case, Timken has following expected operational and financial synergies after the Torrington’s acquisition: 2.1 Operational Synergies: Economies of scale: Timken has started consolidating operations into global business units to reduce costs. They have expected annual savings of $80 million by the end of 2007 after Torrington’s acquisition.(case) As large size is usually expected to yield production economies if manufacturing operations can be amalgamated, marketing economies if similar distribution channels can be utilised, and financial economies if size confers access of capital markets on more favourable terms.(book).Moreover, by reducing the combined sales forces, Timken expected to realize significant purchasing synergies by giving much large volume to a reduced list of suppliers in exchange for price reductions. One analyst estimated that those

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