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Timken India Pays 77% Premium For ABC Bearings

Shareholders of ABC Bearings will get five shares of Timken India for eight shares held.

 A worker measures a ball-bearing casing. (Photographer: Giuseppe Aresu/Bloomberg News)
A worker measures a ball-bearing casing. (Photographer: Giuseppe Aresu/Bloomberg News)

Timken India Ltd., the country’s third-largest bearings maker by sales, will take over ABC Bearings Ltd. in a merger that values its smaller peer at a 77 percent premium to its current market price.

Shareholders of ABC Bearings will get five shares of Timken India for eight shares held, both the parties said in separate disclosures. ABC Bearings will be dissolved once the merger is completed by March, subject to regulatory approvals, it said in an exchange filing.

“The merger came as a bolt from the blue for me,” said investor Vijay Kedia, 4.75 percent owner of ABC Bearings. “In short, ABC Bearings will be moving from a single-lane road to super expressway,” said Kedia, the managing director at brokerage Kedia Securities Pvt.

Merger Math

  • Five shares of Timken India are worth Rs 3,375 based on Tuesday’s closing price of Rs 675.
  • Eight shares of ABC Bearings are worth Rs 1,904 based on the current price of Rs 238.
  • This means that Timken is valuing ABC Bearings 77 percent higher than its current market price.

The merger ratio is fairly reasonable for ABC India shareholders as they get exposure to a multinational company in the bearing sector, where the long-term prospects are good, Avinash Gorakshakar, the head of research at Joindre Capital Services Ltd. told BloombergQuint on the email.

Merger Rationale

The merger will give Timken a business that will help it meet increasing demand for its products and a bigger portfolio, access to new domestic and export markets and a higher market share, the company said in its disclosure.

"Both companies get each other’s niche expertise, thus supplementing and complimenting their offerings," Mayuresh Joshi, a fund manager at Angel Broking told BloombergQuint. The merger will be earnings accretive if synergies play out, Joshi added.

Net Worth


Financial Year 2016-17 End

  • ABC Bearings: Rs 139 crore
  • Timken India: Rs 618 crore

Revenue

Financial Year 2016-17

  • ABC Bearings: Rs 190 crore
  • Timken India: Rs 1,127 crore

Shares of ABC Bearings hit the 20 percent upper limit for the second straight day. The stock has gained 90 percent so far this year. Timken India rose as much as 5.4 percent on Wednesday.