In 2002, the Timken Company was considering acquiring the Torrington Company from Ingersoll-Rand. The acquisition would make a clear statement to the market about Timken’s commitment to remain a worldwide leader in the bearing industry by combining more than 100 years of bearing manufacturing and development experience. Because the two companies shared many of the same customers but had few products in common, customers would surely appreciate that Timken’s sales representatives could meet more of their needs. Timken’s potential annual cost savings from consolidating manufacturing facilities and processes were estimated to be more than $80 million. If the price paid for Torrington were too high, Ingersoll-Rand, rather than Timken, would capture the value of the synergies. In addition, given the large size of the acquisition, Timken was concerned about the impact on its balance sheet. If Ingersoll-Rand demanded a cash deal and if Timken raised the money with new debt, the increased leverage would almost certainly prompt credit agencies to downgrade Timken’s investment-grade rating.
The Bearing Industry
Bearings of various sizes and specifications found their way into everything from space shuttles to household appliances, automobiles, dentist drills, roller skates, and computer disk drives. In 2001, U.S. establishments involved in ball- and roller-bearing manufacturing employed more than 33,000 workers.
The bearing industry was facing a variety of complex problems. Policies favoring the steel industry did not always consider the best interests of the bearing industry, which, as manufacturers of secondary steel products, was in the middle of the production chain. Because bearings were essential components of military and civilian machinery and equipment, the federal government had historically been a major customer. Nonetheless, foreign competitors had taken