Question

case 47:THE TIMKEN COMPANY

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?

Answer 1

5) The deal should be structured with a good strategy of stock and cash. The price offered should be carefully split into a stock offering or a stock to stock deal for Torrington and Ingersoll-Rand and a good portion of it should be in cash. The intangibles could be valued in cash while the other assets can be assumed in stock.

According to a report of analysts, Ingersoll Rand would be willing to settle for a minimum price of $800 million as a fair value for Torrington. Ingersoll-Rand would expect to have a cash deal because stock values of Timken have been much lower priced than that of Ingersoll-Rand and Ingersoll-Rand does not face any advantage for a stock to stock deal. Hence it is expected that the cash deal would be the ideal one that Ingersoll-Rand will be looking for though Timken would find it difficult to raise that amount of cash from its cash strapped budget hence it would rely on debt financing.

6) Timken as an acquirer must look at the valuation of intangibles & customer relationships as a basis for negotiating. It must use the integrative negotiation strategy as this is principled negotiation due to clear cut advantages that would accrue to Timken. Also they must consider the synergies that Torrington acquisition would bring which is expected to bring in a better influence with customer & suppliers & also will bring an annual cost savings of close to $80 million on combined operations.