The Timken Company is acquiring Torrington for $840 million in cash and stock. Timken will now, with $3.6 billion in estimated sales, become the world's third-largest bearing manufacturer behind SKF (Sweden) and INA (Germany).

The surprise announcement, which came after the close of business yesterday, caps a years-long effort by Torrington parent Ingersoll-Rand to divest the unit. Similarly, it ends years of speculation and uncertainty about Torrington's future.

Timken indicated that Torrington's operations are, "highly accretive," bringing it into new markets and new product lines at what could be considered a relative bargain. Torrington, under the Torrington, Fafnir and Killian brands, produces ball bearings, roller bearings, needle bearings, housed units, plain bearings and components.

In its statement, Timken said, "The strategic acquisition of Torrington, which had 2001 sales totaling $1.1 billion, significantly broadens Timken's existing portfolio of automotive and industrial bearings-based products and service solutions and expands the global size and scope of Timken's business. Timken and Torrington both have more than 100 years of operating experience in anti-friction products. Torrington's cylindrical, spherical, needle roller and ball bearings and customized engineering solutions provide a strong complement to Timken's leading tapered roller bearings and alloy steel products."

Over the past several weeks, eBearing has been told by senior insiders at both Timken and Torrington that a deal was in the works, but repeatedly denied by both sides when we sought confirmation. As the acquisition came together, however, the rumors gained a new sense of urgency and became more specific. For example, eBearing was told in late September that the deal was, "on the one yard line," to close by October 1, the start of Timken's fourth quarter. But the details could not be finalized in time.

The acquisition is valued at $840 million, not including cash or debt, and is expected to close by the end of March 2003.

Timken will pay Ingersoll-Rand $700 million in cash and $140 million in new Timken shares. The $700 million component is being financed via a new senior credit facility underwritten by Bank of America, Key Bank, Merrill Lynch & Co., and Morgan Stanley, a public offering of senior notes, and proceeds from a public offering of 11 million Timken shares. The $140 million in new shares issued to Ingersoll-Rand gives I-R 11% ownership in Timken, fully diluted. I-R has agreed not to sell the Timken shares for 6 months after the transaction closes.

At 2001 sales of $1.1 billion, the acquisition values Torrington at 0.76 times sales and 5.7 times trailing earnings.

Over the past several years, eBearing has talked to many people in the industry who believed Ingersoll-Rand's previous asking prices for Torrington had always been too high. Two years ago, one potential acquirer told us they backed down from Torrington because it was, "just too much money for a business that needs too much money and attention." Given the lack of recent strategic investment and the need to address productivity and staffing issues across Torrington's 27 manufacturing plants around the world, any acquirer would have to pay, "a steep discount" to make it an attractive target. One Torrington manager told us today, "Torrington's staffing issues will be as big a challenge for Timken as the manufacturing side." Torrington has approximately 10,500 employees worldwide; Timken has approximately 18,000.

About the integration, Timken said, "Timken's senior management has prepared a detailed integration plan and will extend its ongoing restructuring program to generate cost savings at Torrington and throughout the combined company. Timken will work to realize economies of scale, eliminate duplicative costs, achieve operating efficiencies, and enhance productivity."

Rumors from both Timken and Torrington suggest Ingersoll-Rand's last recent offer for Torrington had been as much as $1 billion, which I-R declined as too low. That would make the $840 million price tag a strong bargain, given the sales and earnings multiples.

Torrington was acquired by Ingersoll-Rand in 1969 and at one time was considered the crown jewel of its diversified manufacturing operations. In recent years, however, I-R's repeated attempts to divest Torrington has been an open secret across the bearing industry. Torrington has also suffered the loss of key executives, and as one senior Torrington staffer told eBearing, "You had no support from I-R, didn't know from day to day whether you would have a job, and every week there was a new name in the rumor mill about who was buying us." The internal turmoil was exacerbated by I-R's obviously negative attitude toward Torrington, making it difficult for Torrington to attract and retain key staff. In fact, almost all of the company's senior management ranks have turned over or been realigned into "less meaningful" roles in the last two or three years.

Timken Chairman W.R. Timken, Jr, said,"We are excited about combining Timken and Torrington, two of the most respected names in manufacturing, to create a stronger bearings products and solutions company that will give us a larger platform to increase shareholder wealth and better serve our customers. We are gaining world leading bearings-based businesses at a fair valuation, and our shareholders will own an expanded global company that is able to leverage many of our existing assets and core competencies and which has a solid balance sheet, greater liquidity and additional value-creation opportunities. By acquiring Torrington, we significantly strengthen our presence in Europe, Asia and Latin America and other emerging markets, which will enable us to compete more effectively, not only with established worldwide firms, but also with growing regional competitors."

Timken President and CEO, Jim Griffith, said, "The acquisition of Torrington will position Timken as a global leader in three complementary product and services lines: tapered roller bearings, needle roller bearings and alloy steels. The addition of Torrington's higher-margin, customized bearings solutions business will significantly strengthen Timken's existing automotive segment and will provide Timken with accelerated growth opportunities in a dynamic area for innovation -- power train systems." He continued, "Overall, this acquisition will play a significant role in our efforts to increase the pace with which we bring new products and services to market. We intend to see a growing percentage of our company's annual sales come from new product and service offerings. We are confident we can utilize our leadership and operational experience to achieve accelerated growth and profitability fro the combined company and look forward to working with the many talented people throughout the Torrington organization."

As with all acquisitions of this size, it is subject to successfully completing the financing arrangements and regulatory approval, and operational and personnel details are yet to be worked out.

NOTE: Just as we set up a separate section on eBearing.com area to cover INA's acquisition of FAG, we will do the same for Timken's acquisition of Torrington.