Cases in Finance

Table of Contents

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Executive Summary

The case ‘The Timken Company’ is about the acquisition of the Torrington from ‘Ingersoll-Rand’ by the

Timken Company. Torrington produces the best quality bearing while the Timken has many wings where

bearing is an important division of their business. Both these companies has 5% of product and 80% of

customers redundancy. After the acquisition Timken will be world’s third largest bearing company.

The main point of this case is how the payment for this acquisition will be made. Expected value of this

acquisition is estimated $800 million. How Timken will pay this large amount is the main question here.

Timken can borrow or can issue stock for this amount. But this large debt will affect Timken’s leverage

ratio, as well as Timken’s investment grading in the market. Another option for Timken is to offer stock

in exchange for the purchase. But still Timken will be needing cash for this acquisition to be complete.

However we have found several circumstances of the financing opportunities for this acquisition which

will affect the value of Timken. we analyzed various risk related to these financing like Interest Rate Risk,

Overall Business Risk, Financial Risk, Degree of Financial Leverage, and Bankruptcy Risk, Du point ratio.

After calculating the NPV of the financing options we have run simulation technique for the potential

investment. We have tried to focus on the best option for the acquisition that will increase the value of

the firm most.

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Introduction

Objective of the study

Usually we gather theoretical knowledge from course material. But it is also very much important to

relate that theoretical knowledge with practical situation. The basic objective of conducting this case

analysis is applying our theoretical knowledge in practical situation. The objective behind conducting

this study is as follows:

 To analyze the ‘The Timken Company’ scenario

 To analyze the...