Timken buying ABC Bearings in all-stock deal at huge premium

American engineering firm Timken is acquiring public listed firm ABC Bearings Ltd, a manufacturer of tapered, cylindrical and spherical roller bearings, and slewing rings in India, in an all-stock deal, it said on Wednesday.

NYSE-listed The Timken Company said its majority-owned subsidiary, Timken India Ltd, has entered into a definitive agreement to acquire ABC Bearings through a merger transaction whereby shareholders of ABC Bearings will receive shares of Timken India as consideration.

The transaction is subject to receipt of various approvals which are expected to take at least six months to complete.

"Timken is a leader in the growing Indian bearing market, and the acquisition of ABC Bearings will expand our capacity, customer base and locally produced product breadth," said Richard G. Kyle, Timken president and chief executive officer. "In addition, we expect to leverage ABC Bearings' competitive manufacturing footprint to serve export markets."

ABC Bearings is listed on BSE, with its registered office in Mumbai. The company operates primarily out of manufacturing facilities in Bharuch, Gujarat, and Dehradun, Uttarakhand. It serves an established original equipment customer base in India, focusing on heavy truck and off-highway industries.

ABC Bearings’ shareholders will get five shares of Timken India for every eight shares they hold in ABC. This means Timken is valuing ABC at a huge premium to its market price.

At the last traded price a day before the announcement, Timken is offering a premium of 77% to ABC’s market value.

The deal has been struck at an adjusted EBITDA multiple of 13.6x on FY2016-17 earnings.

ABC Bearings’ share price rocketed 20% to hit the upper circuit filter and close at Rs 285.7 a share while Timken India's share price rose 15.25% to end at Rs 779 each on BSE in a flat Mumbai market on Wednesday.

ABC Bearings’ revenues rose 16.7% to Rs 210.68 crore while net profit more than doubled to Rs 11.85 crore in the last financial year.

As a combined entity, pro-forma revenues are pegged at Rs 1,317.5 crore with EBITDA of Rs 200 crore and net profit of Rs 109 crore for FY2016-17.

The move will bolster Timken’s position in the tapered bearings market.

Timken India is 75% owned by its US parent. The deal will dilute this stake post merger but the NYSE-listed firm will continue to own the majority stake in the company.

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