GE Will Merge Rail Division with Wabtec

General Electric (GE) used to be the shining star of American business, but it’s fallen on hard times lately. The share price is about one-third of where it was 17 years ago even though the S&P 500 has more than doubled.

Check out a chart of GE versus the S&P 500 since the beginning of last year.

Under new CEO John Flannery, the company has been working hard to right its financial ship. This means they’re selling off assets. Today, GE announced a deal we long thought was coming: they’re selling their transportation business to our own Wabtec (WAB) for $11 billion.

This is a huge deal for WAB. Bear in mind that they have a market cap of roughly $9 billion. Here’s the WSJ:

GE will receive $2.9 billion in cash at closing. GE shareholders will own 40.2% of the combined company, with GE owning about 9.9% after the deal, the companies said Monday.

Wabtec shareholders will retain 49.9% of the combined company. Wabtec’s current chairman and CEO will retain their positions after the deal, which is expected to close in early 2019.

(…)

The transportation unit is one of the smaller of GE’s seven major business lines. The division had about 8,000 employees at the start of the year, down 2,000 from a year earlier, and compares with 313,000 at GE in total.

GE’s diesel locomotives are primarily assembled in Fort Worth, Texas, and western Pennsylvania.

In the first quarter, margins and orders rose at GE’s transportation business but executives said the market for new locomotives remained slow.

GE and Wabtec said they expect the combination to eventually generate about $250 million in annual savings as well as tax benefits currently worth about $1.1 billion. GE will nominate three directors to the combined company’s board.

Wabtec, which said it will keep its headquarters in Wilmerding, Pa., had revenue of $3.9 billion last year, or about the same as GE’s transportation division. Wabtec employs about 18,000 people, or twice as many as GE’s transportation division.

Rather than a straight sale, the deal was structured in a way that would leave GE shareholders with a stake in a public company and avoid a big tax bill. It gives GE shareholders a chance to participate in the turnaround of the struggling business or cash out if they wish.

It’s early, but shares of WAB are getting a nice 4% bounce this morning. GE is up about 2.5%.

Posted by on May 21st, 2018 at 9:51 am


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