Timkken Company Danny Indi Puruhita Dian Permata Sari Fransiska Silaban Ratu Hasanah Semarini
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Timkken CompanyDanny Indi Puruhita Dian Permata SariFransiska SilabanRatu Hasanah Semarini
INTRODUCTION
• Tahun 2002 Timken mempertimbangkan mengakuisisi the Torrington Company dari Ingersoll Rand.
• Potensi penghematan biaya tahunan Timken dari akuisisi ini diperkirakan $80 juta.
• Apabila harga akuisisi yang dibayarkan terlalu tinggi, maka Ingersoll-Rand akan memperoleh nilai sinergi.
• Apabila akuisisi yang dilakukan Timken menggunakan utang baru, maka grade rating investasi Timken akan mengalami downgrade
THE BEARING INDUSTRY
• Bearing industry merupakan industri sekunder dalam industri baja, sehingga kebijakan dalam industri baja tidak selalu menguntungkan mereka.
• Pengiriman kawat gulung tumbuh sepanjang tahun 1990an dan puncaknya pada 1998, sales $5,8 miliar.
• Tahun 2001 sales turun menjadi $5,3 miliar, karena resesi ekonomi, dan serangan teroris 11 September 2001.
THE BEARING INDUSTRY
• Pada tahun 2003 diprediksi flat dan cenderung naik 2 sd 3%
• Penjualan tahun 2005 meningkat 6,5% menjadi $42 miliar
• Ekspansi Cina menghasilkan kebijakan antidumping.
• Pemain industri: SKF (Swedia, market share 20% di seluruh dunia); Timken; dan SKF.
THE BEARING INDUSTRY
COMPANY SALES 2002 EMPLOYEE 2002 BASIS AREA
SKF LTD. US$4,8 miliar 39.000 Swedia
NSK LTD.US$3,62 miliar
22.000 Tokyo, Jepang
TIMKEN LTD.US$2,55 miliar
18.000 Canton-Ohio, US
THE TIMKEN COMPANY
Timken Business Unit
Ingersoll-Rand
MERGEDMERGED
Ingersoll Rand’s Segment
25 % of consolidated sales
17% of income among all segments
27 % of consolidated sales
28 % of income among all segments
15 % of consolidated sales
43 % of income among all segments
33 % of consolidated sales
22 % of income among all segments
The Torrington Company
• Excelsior Needle Company didirikan pada 1866
• Melebarkan bisnis ke industri otomotif• WW II banyak memproduksi bearings • 1969 diakuisisi oleh Ingersoll-Rand• Torrington:
– Automotive– Industrial
The Torrington Company
• Sales– North America: 73%– Europe : 17%– Others : 10%
• 10.500 karyawan• 27 pabrik• 2002
– Revenues : $1,204 bio– Operating income : $85,2 mio
• 2007– Revenues : $1,65 bio– Operating Income : $116,7
Timken
• 2002: companywide restructure
• Berencana menambah produk baru ke dalam portofolio bundling
CASE QUESTION
1. How does Torrington fit with the Timken Company? What are the expected synergies?
2. What is your stand-alone valuation of Torrington? Be prepared to explain and justify all the major assumptions used in your estimate.
3. What is your with-synergies valuation of Torrington? Be prepared to explain and justify all the major assumptions used in your estimate.
4. Should Timken be concerned about losing its investment-grade rating? How do Timken’s financial ratios compare with those of other industrial firms in 2002? How would those ratios change if Timken borrowed $800 million, for example, to buy Torrington?
5. If Timken decides to go forward with the acquisition, how should Timken offer to structure the deal? Is Ingersoll-Rand likely to want a cash deal or a stock-for-stock deal?
6. What are the risks for Ingersoll-Rand of accepting Timken shares for some or all of the consideration?
Bagaimana Torrington Dapat Sesuai dengan Timken?
• Segmen bisnis yang sama otomotif dan industri
• Sifat produk komplementer, bukan substitusi portofolio Timken
• Memiliki keahlian masing-masing
Synergies
• Pemain terbesar ke 3
• Meningkatnya value added kepuasan pelanggan
• Penghematan biaya tahunan $80 juta
• Market share Timken 7% 11%
• Utilisasi jaringan distribusi Timken
2. Stand Alone Valuation of TorringtonAssumptions
Cost of funds Weighting Weighting Cost
Debt (462,20) 4.35% 0.30 1.31%
Equity (1,065.12) 10% 0.70 7.31%
WACC 8.62%
Stand Alone of TorringtonDiscounted Cash Flow Model
• Free CF : Operating Inconme + Depreciation expense – Tax expense – Capex – Change in WC
• Change in WC : 10.43% of change in sales• Terminal CF rate : 4% • Terminal CF : Final projected year CF * (1+
terminal value rate) (DR-terminal value rate)
Stand Alone of TorringtonDiscounted Cash Flow Model
CF 2002 2003 2004 2005 2006 2007Net sales 1204 1282 1,365 1,454 1,549 1,649.2
Depreciation Expense 80 84 90 96 102 108.5
Operating expense 1,039 1,107 1,179 1,255 1,337 1,424.0
Operating Income 85 91 97 103 110 116.70
Capital Expenditure ( 41) (175) (130) (140) (150) (160.0)
Tax Expense (34) (36) (39) (41) (44) (46.5)
changing in WC (8.14) (9) (9) (10) (10.5)
Free Cash Flow (44.4) 9.4 8.6 8.0 8.2
Terminal cash flow 183.7 Total ` (44) 9 9 8 192
Enterprise value 106
Stand Alone of TorringtonMultiples Valuation
• Enterprise Value / EBITDA : 5.90 (exhibit 8,refer to Timken Co)
• EBITDA : 165
• Enterprise Value : 5.90 x 165
: 975
3. What is your with-synergies valuation of Torrington? Be prepared to explain and justify all the major assumptions used in your estimate.
KETERANGAN 2002 2003 2004 2005 2006 2007
Cost Saving 40 50 60 70 80
Cost Saving (after tax) 24.5 30.06 36.07 42.08 48.09
Perpetuity Value 557.95
Integration Cost (65.00) (65.00)
CF (40.95) (34.94) 36.07 42.08 606.04
NPV (sinergy value) $391.89
Asumsi :1)Tarif pajak tidak berubah sejak tahun 2012 (39.88%)2)Cost saving terus meningkat hingga tahun 2007 mencapai US$ 80 juta, setelah itu cost saving diperkirakan konstan33)WACC :8.62%
4. Should Timken be concerned about losing its investment-grade rating? How do Timken’s financial ratios compare with those of other industrial firms in 2002? How would
those ratios change if Timken borrowed $800 million, for example, to buy Torrington?
Financial Ratio
Financial Ratio Cot’d
Financial Ratio Cot’d
Financial Ratio Cot’d
Financial Ratio Cot’d
Bearing Companies Kaydon
NN Inc Timken
Commercial
Metal Usa
Mueller Industries
Precision Castparts Corp. Quanex Corp.
Worthington Ind.
EPS 0.84 0.16 1.70 1.34 1.61 2.35 5.26 1.83 2.48
PE 23.86 59.96 9.88 13.39 0.00 11.02 4.12 18.94 7.53
EBITDA/Sales%
21.50%
15% 10% 6% 0% 13% 18% 13% 9%
5. If Timken decides to go forward with the acquisition, how should Timken offer to structure the deal? Is Ingersoll-Rand likely to want a
cash deal or a stock-for-stock deal?
Proforma
Cash Deal with IPO Stock for EFN
Before After 2002 7% 11%
DCR 43.09% 62,73% 62,67%
Adding EFN with Equity $777.23
Adding EFN with Equity
$792.99
DCR 43.09 % 45.24% 44.95%
Bond Rating = BBB
Microsoft Office User
Microsoft Office User
Bond Rating B
Financial ratio
Liquidity Ratio 2002
2002-7%
2002-11%
Current Ratio 1.53
1.54
1.55
Quick Ratio 0.76
0.76
0.77
Cash Ratio 0.13 0.13
0.13
Working Capital
334.20
365.37
383.18
Financial ratioLeverage Ratios 2002
2002-7%
2002-11%
Total Debt To Assets
0.09
0.04
0.04
Debt-Equity Ratio
0.32
0.10
0.10
Equity Multiplier 3.50 2.55 2.55
NPV Toringtoncash Acquisition
Net sales
1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
$1,239.50 $1,161.00 $1,004.30 $1,204.00 $1,282.00 $1,365.30 $1,454.10 $1,548.60 $1,649.20
Operating income
$ 145.70 $ 172.60 $ 78.00 $ 85.20 $ 90.70 $ 96.60 $ 102.90 $ 109.50 $ 116.70
Sales growth -6.3% 13.5% 19.9% 6.5% 6.5% 6.5% 6.5% 6.5%
Operating margin
11.8% 14.9% 7.8% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1%
Capital expenditures
$ 84.00 $ 85.00 $ 45.00 $ 41.00 $ 175.00 $ 130.00 $ 140.00 $ 150.00 $ 160.00
Depreciation expense
$ 75.00 $ 77.00 $ 79.00 $ 80.00 $ 84.20 $ 90.00 $ 96.00 $ 102.00 $ 108.50
OCF $ (0.10)
$ 56.60 $ 58.90 $ 61.50 $ 65.20
Initial Outlay $ (130.00)
$ (0.09)
$ 47.97 $ 45.96 $ 44.18 $ 43.12
$ 181.14
NPV $ 51.14
NPV Torrington dengan mempertimbangkan WACC 8.62%
6. What are the risks for Ingersoll-Rand of accepting Timken shares for some or all of the consideration?
• Valuasi harga saham yang tidak tepat
• Volatilitas harga saham
TERIMA KASIH
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