Timken Company Case Study

Timken Case

The Timken Company was considering purchasing the Torrington Company from Ingersoll-Rand. Torrington and Timken shared many of the same customers but had few products in common. This purchase could allow Timken to create value from the synergies with Torrington, but only if purchased at the correct price.

 Considering how the Torrington company and the Timken company both share a great percentage of the same customers (80%), but don’t have many products that are in common, combining both companies results in Timken company being able to give their customers everything they need all from one company without the need to seek a different one. Torrington company fits with Timken company in how they both operate in two common segments: automotive and industrial, and the acquisition of it will represent a remarkable growth for Timken company in both segments. By this acquisition Timken is declaring how it is very much devoted to staying the world leader in the bearing industry, as the expected results from this acquisition will lead to Timken company being the third largest company in producing bearings. Some of the expected synergies of this acquisition would be Timkens ability to use Torrington presence and brand name in the international market to increase their international penetration from 7% to 11%. However, because of how big the Torrington company is, there is a high percentage of Timken company increasing their debt because of the cash they will need to raise in order to acquire Torrington which will also lead to Timken losing their investment rate of Baa1/BBB.  

By acquiring Torrington, Timken could distinguish itself from foreign competitors. Timken and Torrington only had 5% overlap in their products offering, but they had 80% overlap in their customers. By acquiring Torrington, Timken could create a more completed product line. Moreover, Torrington’s products could complement Timken’s existing products. For example, sophisticated needle-bearing solutions of Torrington could complement Timken’s existing portfolio of tapered roller bearing and precision steel components for wheel ends and driveline. By acquiring Torrington, Timken could make its new-product development more effective, because of the complement between Timken’s products and Torrington’s. In this way, Timken could more precisely meet customers’ needs, with its new products and a more completed products line. Precisely meeting customers’ needs with its new products would help Timken to distinguish itself from foreign competitors, who provides standard products with lower prices.

 By acquiring Torrington, Timken could also increase its global market share. Timken already had an international distribution network. So, Timken can use its international distribution network to deliver Torrington’s products under the well-known Timken brand name. In this way, Timken could increase its range of product. It is expected that Timken’s global market share would increase to 11% from 7%.

By acquiring Torrington, Timken could cut its cost. If the acquisition happens, Timken would become the third-largest producer of bearings in the world. Becoming the third-largest producer of bearings would give Timken stronger bargain power in the negotiations with customers and suppliers. In this way, Timken could raise the price of its products and decrease costs of buying inventories from suppliers. Moreover, Timken could cut its costs by reduce its sales force. Because Timken and Torrington had 80% overlap in their customers, there is no doubt that Timken and Torrington had overlap in their sales force. By cutting the overlap in sales force, Timken could cut its costs. Through strengthening its bargain power and cutting lost, Timken expected annual cost saving of $80 million by the end of 2007.