Published: Tue, May 22, 2018
Medical | By Johnnie Horton

GE Transportation spins off rail unit in $11.1 billion merger with Wabtec

GE Transportation spins off rail unit in $11.1 billion merger with Wabtec

GE will retain a 50.1 percent stake in the combined entity, with the Boston-based company to receive a $2.9 billion cash payment in the deal. Wabtec shareholders will hold the rest after the tax-free transaction, which is expected to close early next year.

The transportation business is the company's second-smallest unit by sales, and it has struggled to perform amid train industry budget cuts and strong competition. For the record, GE's transport unit, which accrues almost Dollars 4.7 billion for the firm, has manufactured freight & passenger locomotives, mining instrument, and marine diesel engines. GE Transportation has received orders worth $US 3.6bn in in the last two quarters. "It also is one of our most cost-competitive sites and the team has demonstrated the ability to efficiently take on additional work". Besides locomotive and railcar parts, it also produces products such as railroad signaling equipment, and provides fix services for GE and other locomotives.

Wabtec CEO Raymond Betler will lead the combined company and its chairman, Albert Neupaver, will be executive chairman. The merged company will have revenues of $US 8bn with more than 23,000 locomotives in its global installed base and components on virtually all North American locomotives and freight wagons. GE Transportation's EBITDA (earnings before interest, taxes and depreciation) is expected to grow from about $750 million this year to between $900 million and $1 billion in 2019.

Completed Norfolk Southern AC44C6M at GE Transportation’s GEMS plant in Fort Worth. William C. Vantuono
Completed Norfolk Southern AC44C6M at GE Transportation’s GEMS plant in Fort Worth. William C. Vantuono

Wabtec says it has obtained full commitments for a $US 2.9bn bridge facility and expects to put in place permanent debt financing prior to closing the deal. On the other hand, Wabtec is known to manufacture equipment for various locomotives such as freight cars and passenger transportation vehicles. Accern also gave news coverage about the transportation company an impact score of 47.5560551082825 out of 100, indicating that recent press coverage is somewhat unlikely to have an impact on the company's share price in the immediate future.

In 2017, GE's transportation unit revenue slid 11% to $4.2 billion and profit tumbled 27% to $0.8 billion.

GE's stock has lost about half its value in the a year ago, and the company has been working with activist hedge fund Trian Fund Management LP, which sits on its board of directors, to turn the business around.

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