The Timken Company is one of the world's leaders in the bearing industry, with operations spanning the past 100 years. Timken has experienced sluggish profits recently, forcing it to consolidate its workforce and cut its dividend payments. Timken has been in contact with Ingersoll-Rand, a globally diversified manufacturer of commercial and industrial equipment and components, with the possibility of acquiring one of their subsidiaries specializing in the bearing industry, Torrington Company . The U.S. bearing industry has recently experienced a variety of problems, including pressure from foreign competitors able to offer products of similar quality at lower prices. The bearing market has reached its peak and Timken has now found a way to get ahead of foreign competition, by customizing its products to meet customer needs. For Timken to achieve their goals, they identified Torrington Company as the ideal solution to help them accelerate foreign competition and grow their business sustainably. To estimate the price Timken should offer IR, we used different methods, including Torrington's discounted cash flow method and an industry earnings multiple method. Based on our analysis, we believe it is best for Timken to offer a total of $893.46 million to Ingersoll-Rand for Torrington, with the majority being cash raised through a debt issuance, and the remainder of an agreed interest in Timken. The details and analysis are explained in the note as follows. The potential benefits of the Torrington acquisition for Timken are not quantifiable. The auto industry has been quite volatile lately and is a concern for management. Torrington offers strong potential...... middle of paper ...... in new debt and $400 million in equity through a rights offering. By doing so, Timken can raise $800 million in cash to bid for Ingersoll-Rand. The increase in debt allows Timken to maintain acceptable coverage ratios within the BBB investment grade rating [Exhibits 6 and 7]. To minimize Ingersoll-Rand's exposure to volatility in our stock price, we recommend that the remaining $93.46 million of the transaction be a stock-for-stock transaction, or 4.92 million shares at current price of $19 per share. The risk is that historically, during acquisitions, the stock price of the acquiring company falls. If the market can realize the growth potential of the acquisition and the extent to which it can benefit Timken, then its stock price should appreciate. Ingersoll-Rand should be inclined to accept because the majority is in a cash offer, and once they do, Timken shareholders could reap huge benefits from the acquisition..