CalSTRS barked – and a major company 2,400 miles away rolled over.
Under pressure from CalSTRS and another big shareholder, a $5 billion-a-year manufacturer agreed late Thursday to undergo a major restructuring. The Timken Co. of Canton, Ohio, will split itself into two separate companies – one making steel, the other making ball bearings.
Timken’s board announced the move four months after CalSTRS and Relational Investors, an institutional shareholder from San Diego, won a nonbinding shareholder resolution urging Timken to split itself up.
The decision represents a victory for the California State Teachers’ Retirement System, which has been taking a tougher stance on corporate governance issues in the past couple of years. It’s unusual for a big corporation to go along with a nonbinding shareholder resolution, especially on a question as important to the company’s future as this.
“That’s pretty rare ... particularly around that kind of a strategic issue,” said James Hawley, a business professor at St. Mary’s College of California who studies corporate governance.
CalSTRS and Relational both cheered Timken’s announcement.
“It means they’ve listened to their shareholders,” said Anne Sheehan, CalSTRS’ corporate governance director, in a press release. “We firmly believe this action will create long-term benefit for the shareholders.”
CalSTRS owns about 370,000 shares, or 0.39 percent, of Timken’s stock. Those shares were worth about $22.8 million Friday. Relational owns 6.6 million shares.
CalSTRS and Relational wanted the split under the theory that the two companies will carry a higher combined stock market value than one. Timken’s stock closed Friday at $61.52 – an all-time high, according to Bloomberg News.
The two investors won the shareholder resolution at Timken’s annual meeting in early May by a 53-47 margin. That by itself was a bit of a shocker; outside shareholders often declare a moral victory if they can pull 30 percent of the vote.
Timken originally resisted the idea of a split, but after the vote, it spoke to a host of big shareholders.
Timken’s leaders “had to challenge our traditional thinking,” said Tim Timken, chairman of the company, in a conference call Friday with investment analysts.
It was CalSTRS’ second significant governance victory in less than a year. In December, the pension fund said it would “re-examine” its $625 million investment in the private equity firm that controls the manufacturer of the assault rifle used in that month’s elementary school massacre in Newtown, Conn. A day later, the firm put the manufacturer up for sale, although it wouldn’t say if CalSTRS’ protest influenced the decision.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler