Timken Case

In: Business and Management

Submitted By cnbadger
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The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company. Torrington Company, a leading manufacturer of needle roller bearings which is an engineering solution segment from Ingersoll-Rand. Both companies operate and compete in same business and therefore, Timken is seeking substantial operating synergies from this largest acquisition of its history. With this acquisition, Timken is increasing the size of company by almost 50 percent. And, Timken will continue to concentrate on what it do best by buying a company in an industry, where it has a leadership position built on decades of expertise. Timken expects to expand its worldwide business base with new products and services as both companies have only 5 percent overlap in their product offerings. Timken will also be able to broaden its technology and engineering capabilities to enable it to deliver more value to customers around the globe; the two companies’ customer list overlaps by 80 percent. Thus it was expected that the combined companies would be able to create more value for customers with a more complete product line and, eventually more effective new-product development. Timken will move quickly to integrate Torrington into its global automotive and industrial business structures and expects to achieve estimated annualized savings of $80 million by the end of 2007. These savings are expected to come from economies of scale; consolidating purchasing activities and distribution channels, combining operations and eliminating redundancies within the organization.

My first stand –alone valuation of Torrington is based on the DCF analysis method. First of all, Torrington’s parent company (Ingersoll-Rand)’s WACC needs to be calculated. A tax rate of 39% is assumed based on its historical information and leverage ratios of 37.6% is estimated based on the book value…...

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