Eco Paper Somting

gggg later to pay down the debt would allow Timken to issue fewer shares for the same amount of funding.

The EBITDA multiples can also be used as an alternative method for computing terminal value. Exhibit TN5 is a summary of the valuation estimates as a function of using Timken’s multiple (5.9) and the industry median multiple (6.6) for 2007 terminal values. The multiples consistently give higher valuations than the growth model. Torrington’s projected margins at 13.7% are much higher than Timken’s (10.1%) and slightly higher than the industry median of 12.8%. Case Exhibit 8, however, shows no particular relation between margins and multiples, such that neither multiple seems unreasonable. The growth model produces closer results for the with-synergies scenario, but remains lower than either multiple. The explanation for the difference between these valuation methods might be found in the market’s expectation of future capital efficiency. If we allow Torrington to gain efficiency in the use of its PPE, the growth model will yield a higher valuation. In general, these methods often yield different estimates. For Torrington, the multiples uniformly suggest higher values, which should give the analysts confidence that the growth-model-based valuation is a conservative estimate of Timken’s potential upside.

Timken’s Bidding Strategy

It is important for students to understand why Timken needs to estimate both a stand-alone and a with-synergies valuation. The standalone value should approximate the value of Torrington to Ingersoll-Rand because IR was holding Torrington as a passive investment, much as an individual holds shares of stock. With no apparent or expected sources of synergies between the two companies, Torrington’s value to IR was unlikely to differ from its value as an independently run company. The with-synergies valuation should represent the value of Torrington to Timken, which is substantially higher than the standalone value owing to the...