Done Deal: Big News In Big Engines

Wabtec Corp. said it has entered into a definitive agreement to combine with GE Transportation, a unit of General Electric Company (GE). Under the agreement, which has been approved by the boards of directors of Wabtec and GE, GE will receive $2.9 billion in cash at closing and GE and its shareholders will receive a 50.1% ownership interest in the combined company, with Wabtec shareholders retaining 49.9% of the combined company. 

The transaction is expected to close in early 2019, subject to customary closing conditions, approval by Wabtec shareholders, and regulatory approvals.  Based on Wabtec’s stock price on April 19, 2018, the value of the transaction is approximately $11.1 billion.

Effective immediately, Wabtec Chairman Albert J. Neupaver has been re-appointed executive chairman of the company, while Raymond T. Betler remains Wabtec’s president and CEO. Following the completion of the transaction, Stéphane Rambaud-Measson will become president and CEO of Wabtec’s Transit Segment; and Rafael Santana, president and CEO of GE Transportation, will become president and CEO of Wabtec’s Freight Segment.

Following the completion of the transaction, Wabtec’s corporate headquarters will remain in Wilmerding, Pa. Wabtec’s Freight Segment will be headquartered in Chicago, and Wabtec’s Transit Segment headquarters will remain in Paris. GE will designate for nomination three independent board members.

Details of the transaction start with GE selling a portion of the assets of GE Transportation to Wabtec; spinning-off or splitting-off of a portion of GE Transportation to GE shareholders; and immediately thereafter merging GE Transportation with a wholly owned subsidiary of Wabtec. 

Upon closing, Wabtec shareholders will own approximately 49.9%, and it is planned that GE shareholders will own approximately 40.2%, and GE will own 9.9% of the merged company on a fully diluted basis. GE has the right to increase the portion of the merged company owned by GE shareholders (subject to a corresponding reduction in GE’s ownership).

The combined company is expected to have approximately $8 billion in combined revenues and a large global installed base of more than 23,000 locomotives and content on virtually all locomotives and freight cars in North America.  This, the announcement said, should create significant opportunities for aftermarket parts and services around the world.

The announcement also said both companies are expected to benefit from the cyclical tailwinds they are experiencing as industry conditions improve. GE Transportation reportedly has a backlog of approximately $18 billion that includes 1800 new locomotives and approximately 1000 to be modernized. GE Transportation has also reportedly received $3.6 billion in orders in the last two quarters. 

GE Transportation, headquartered in Chicago, Ill., is a $5.8 billion segment of GE and manufactures for the railroad, marine, mining, drilling and power generation markets. Besides its own brands, the group also owns the Jenbacher range of natural gas engines.

This is the second major piece of news to hit the large output engine and gas turbine business in as many weeks, with Siemens recently announcing it will temporarily shut down its Power and Gas (PG) division. While that announcement primarily reflects a slowdown in the markets for gas turbines, it does reflect ongoing challenges in a number of similar and related markets.

Siemens said in November that it would cut about 6900 jobs, mainly at its PG division, as the company sought to cope with a rapidly changing global power market.

“Against the background of an ongoing and unprecedented downswing in the market for power generation equipment, the Power and Gas division (PG) has globally announced temporary shut-downs,” Siemens said in its closing announcement.

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