1. Here’s why Timken India is paying over 77% premium for ABC Bearings

Here’s why Timken India is paying over 77% premium for ABC Bearings

Shareholders of ABC Bearings will get 5 shares of Timken India for every 8 shares held. This means Timken India is acquiring ABC India at 77.43% premium. Here are the reasons for such a hefty premium.

By: | Published: July 5, 2017 5:22 PM
Timken India will take over ABC Bearings in a deal that values the latter at a 77.43% premium to its yesterday’s closing market price. (Image: Reuters)

Timken India will take over ABC Bearings in a deal that values the latter at a hefty premium to its current market price. Shareholders of ABC Bearings will get five shares of Timken India for every eight shares held of the former. As of close of trade on 4 July 2017, Timken India’s share price was Rs 675.95 while that of ABC Bearings was Rs 238.10. This translates into Timken India acquiring ABC India at 77.43%  premium.

Timken India is a subsidiary of The Timken Company, which is a US based leading manufacturer of taper roller bearings, which is the also the main product currently being manufactured by ABC Bearings.

Shares of ABC Bearings have zoomed 61 per cent in the last three trading sessions and were locked in an upper circuit for the second consecutive day. The scrip has moved from Rs 177.45 on 30 June to Rs 285.70 at close of trade today. Meanwhile, Timken India stock has soared 16.78 per cent in the same time from Rs 667.05 to Rs 779.00.

Here are the reasons that Timken India is paying such a hefty premium to acquire its much smaller peer, ABC Bearings:

Increase in Capacity

Timken India needs a facility that will help it meet the increasing demand for its products across the globe. The manufacturing facility of ABC Bearings will allow Timken India to achieve goal and at the same time allow ABC bearings to get access to new technology and new markets.

Better efficiency

Both Timken India and ABC Bearings, will enhance their efficiency by achieveing a larger product portfolio, economies of scale and other related economies through this amalgamation.

New Geographies

This merger will allow Timken India and ABC Bearings to access new domestic and export markets, and also increase their market share.

Shareholders

This merger would be beneficial for the shareholders, investors and creditors of ABC Bearings and Timken India, the former told the Bombay Stock Exchange in a regulatory filing reagrding this amalgamation.

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