GE to Merge Rail Division With Wabtec in $11 Billion Deal -- Update
May 21 2018 - 9:06AM
Dow Jones News
By Thomas Gryta
General Electric Co. agreed to merge its railroad business with
Wabtec Corp. in a deal valued at about $11 billion, letting GE
raise some cash to fund its turnaround and shed one of its oldest
operations.
The transaction is the first major portfolio move in new GE CEO
John Flannery's attempt to revamp the struggling conglomerate.
Wabtec, formerly known as Westinghouse Air Brake Technologies
Corp., makes equipment for transit systems and freight railroads
and has a market value of about $9 billion, based on Friday's
closing price.
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.
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.
GE has been looking at options for the transportation division
since at least last fall. The segment mainly produces freight
locomotives, which sell for millions of dollars apiece, along with
mining equipment and marine motors.
Although GE is one of the world's biggest makers of freight
locomotives, the business is cyclical and has been suffering lately
from slack demand. In 2017, the unit's revenue slipped 11% and
profit fell 23%. The division accounted for $4.2 billion of GE's
total 2017 revenue of $122.1 billion.
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.
Mr. Flannery took over as CEO of GE last summer, intent on
making major changes that resulted in a dividend cut, slashed
financial projections and the overhauling of the board. GE is
expected to reveal more about its portfolio plans soon, as Mr.
Flannery is considering all options, including potentially breaking
apart its three major units -- aviation, health care and power.
In October, Mr. Flannery promised to sell $20 billion worth of
assets. Before the Wabtec deal, GE had announced a handful of deals
totaling less than $4 billion. The company's century-old GE
Lighting division has been on the auction block for more than a
year.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
May 21, 2018 08:51 ET (12:51 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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