GE merges rail unit with Wabtec in US$11.1b deal
Print Edition
General Electric will tie its train engine division to the railroad equipment maker Wabtec in deal worth about US$11 billion as GE CEO John Flannery continues to break off parts of the conglomerate.
Wabtec CEO Raymond Betler will lead the combined company and its chairman, Albert Neupaver, will be executive chairman.
Under the deal announced on Monday and approved by the boards of both companies, General Electric Co will get US$2.9 billion in cash. The deal is expected to close early next year.
GE plans to split-off the company after it closes the deal, essentially giving Wabtec shareholders ownership, with 49.9 percent of the new company. GE shareholders will hold a 40.2 percent stake and GE will own 9.9 percent.
The combined company will have more than 23,000 locomotives globally.
Based on Wabtec’s stock price on April 19, the last unaffected trading day prior to media speculation regarding a potential transaction, the value of the transaction is approximately US$11.1 billion, the companies said.
When adjusted for the net tax step-up value of US$1.1 billion accruing to the combined company, the transaction value is US$10 billion.
The transaction is expected to be tax free to the companies’ respective shareholders.
GE’s transportation business, which generated revenue of US$4.7 billion last year, manufactures freight and passenger trains, marine diesel engines and mining equipment, among other products.
Flannery took over at GE just about a year ago and has vowed to accelerate the company’s transformation from a sprawling conglomerate. Flannery, who headed GE’s health care unit, is focusing on health, aviation and energy.
Earlier this year after GE’s surprise charge of US$15 billion to make up for the miscalculations of an insurance subsidiary, Flannery said, “All options on the table, no sacred cows.”
Flannery plans to shed business units worth over US$20 billion in the near term, and Wall Street appeared heartened by the prospect of partially carving off the rail business.
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