Wabtec Corporation has entered into a definitive agreement to combine with GE Transportation, a unit of General Electric Company.
The combination will make Wabtec a Fortune 500, global transportation leader in rail equipment, software, and services, with operations in more than 50 countries.
The deal is the biggest to be inked thus far by GE Chief Executive John Flannery since he announced a major overhaul of the U.S. industrial conglomerate late last year.
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 be tax-free to the companies’ respective shareholders.
The combination will bring together two global leaders in rail equipment, services, and software, combining GE Transportation, a global digital industrial leader, and supplier to the rail, mining, marine, stationary power and drilling industries, with Wabtec’s broad range of freight, transit and electronics solutions.
Wabtec and GE shareholders will have ownership in a combined company with significantly expanded margins, a highly attractive growth profile based on an improved business mix, expanded global reach, and faster innovation in key growth areas.
Key Strategic Benefits
The combination is expected to:
- Drive increased value for shareholders: With approximately $8 billion in combined revenues and a large global installed base, the combined company will have a leading position in key freight rail and transit geographies worldwide and will be well-positioned to serve customers as industry demand continues to improve. Investors are expected to benefit through ownership of a stronger, more diverse business better positioned to perform through the cycle, with expected annual double-digit EPS growth and total run-rate synergies of about $250 million estimated to be achieved by 2022. Furthermore, the transaction will facilitate a tax step-up with an NPV of approximately $1.1 billion of net tax benefit accruing to the combined company.
- Create a leading equipment, aftermarket services, and digital solutions provider across the transportation ecosystem: From factory to the final destination – and every point in-between – the combined company will have the capabilities to accelerate lifecycle solutions for the transportation industry and unlock significant productivity for customers by improving interoperability, efficiency, and competitiveness.
- Capitalize on digital/electronic technologies to develop autonomous capabilities: Bringing together GE Transportation’s digital solutions with Wabtec’s electronic systems is expected to drive the advancement and implementation of technology solutions to improve safety, efficiency and productivity for the transportation industry. This combination will create a compelling offering to meet the industry’s rapidly growing demand for rail performance, with the potential to unlock billions in annual savings across freight rail for customers and operators.
- Generate growth opportunities through the extensive installed base and attractive global footprint: The combined company will be a leading global freight and transit rail provider with more than 23,000 locomotives in its global installed base and content on virtually all locomotives and freight cars in North America, creating significant opportunities for aftermarket parts and services in key regions around the world.
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.
Betler said: “Wabtec and GE Transportation are global industry leaders and we believe that together we have a unique opportunity to drive tremendous growth in 2019 and beyond as the industry continues to improve. By bringing together our highly complementary strengths we are confident that this transformational combination will create value for both Wabtec and GE shareholders, innovative solutions for our customers, and new outlets for long-term career growth for our employees. Our two companies have more than 250 years of rail industry heritage, and our shared focus on safety, reliability, quality, and customer relationships will enable a smooth integration.”
Santana said: “The combination of our two strong brands and remarkable people is an excellent fit that will create an organization well-positioned to accelerate the future of transportation. Together, we can expand our global reach, strengthen our market capabilities and lead digital innovation across the transportation industry. We are seeing growth in rail traffic and recent promising orders for new and modernized locomotives from North American Class I, Shortlines and international railroads, and are confident in the compelling long-term opportunities and synergies before us.”
Wabtec Corporation is a leading global provider of equipment, systems and value-added services for transit and freight rail. Through its subsidiaries, the company manufactures a range of products for locomotives, freight cars, and passenger transit vehicles. The company also builds new switcher and commuter locomotives and provides aftermarket services. The company has roughly 18,000 employees and facilities located throughout the world. For the fiscal year ending December 31, 2017, Wabtec generated approximately $3.9 billion in revenue and $504 million in adjusted EBIT (approximately 13% margin).
About GE Transportation
GE Transportation helps move the world and improve the world, as a global technology leader and supplier of equipment, services and digital solutions to the rail, mining, marine, stationary power and drilling industries. GE Transportation’s innovations help customers deliver goods and services with greater speed and savings using advanced manufacturing techniques and connected machines. The company employs approximately 9,000 employees worldwide. GE Transportation has a backlog of roughly $18 billion, including approximately 1,800 new locomotives and roughly 1,000 locomotive modernized units. For the fiscal year ending December 31, 2017, GE Transportation generated approximately $3.9 billion in revenue and $701 million in adjusted EBIT (approximately 18% margin).