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Relational Investors LLC And CalSTRS Urge Timken’s Board To Take Action To Separate The Company’s Businesses To Unlock Shareholder Value

SKF entered into long-term supply agreements with Ovako to ensure a continued supply of high-quality bearing steel and prevent the loss of technology. During the 20 months 7 from SKF’s announcement of the separation to finalization of the transaction, the stock returned 59% vs. Timken’s return of 10% over the same period.

On January 13, 2011 Marathon Oil (ticker: MRO) announced a plan to separate its refining operations into a separate publicly-traded corporation, Marathon Petroleum (ticker: MPC), allowing the remaining company (ticker: MRO) to focus on exploration and production. The company cited expected benefits of enhanced flexibility to optimally operate each business, improved transparency to the market, and a better ability to attract talent as driving forces behind the separation. Over the six months 8 from the announcement to finalization of the separation, the stock returned 40% compared to only 10% for the S&P 500 Energy Index.

The outperformance often seen after spin-off transactions is generally driven by investor expectations of increased operating performance in the long-term as a result of improved management focus:

“Historically, spinoffs have worked out well. The common thread that runs through all of this is, if you boil it down, the management focus. They go from being unwieldy conglomerates with different businesses competing for capital and management’s attention, to being more focused entities. Often that translates into better financial performance that should work its way into the stock.” 9

Separation should not be disruptive to Timken employees and the Community

There should be no meaningful disruption for the Canton community and Timken’s employees through the separation of the two businesses. The Timken name and Canton headquarters can survive with both companies as independent entities. We also believe that additional employment may be needed to help operate the two companies as independent businesses. In our financial model, we assume corporate costs increase $25M per year as a result of the separation, which includes costs for new employment. We do not advocate or expect any change in employment levels at Timken’s steel or bearings operations.

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