General Electric to merge its transportation business with Wabtec

22 May, 2018, 15:31 | Author: Earnest Bishop
  • General Electric is seen at its plant in Baden Switzerland

GE Transportation Chief Executive Rafael Santana will become president and CEO of Wabtec's freight segment. Wolfe Research upgraded shares of Wabtec from a "market perform" rating to an "outperform" rating and set a $88.00 price objective for the company in a report on Friday, February 16th.

Following a board of director shake-up, Flannery has pledged to cut $2 billion in cost for 2018 and to slash the company's once-coveted dividend in half.

Westinghouse Air Brake Technologies Corporation, doing business as Wabtec Corporation, provides technology-based equipment, systems, and services for the freight rail and passenger transit vehicle industries worldwide. Sources cite that the deal is expected to evaluate the combined firm at over United States dollars 20 billion.

GE will designate for nomination three independent board members.

A Reverse Morris Trust transaction allows a company to avoid a big tax bill by spinning off a unit that it wants to divest and simultaneously merging it with another company.

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Flannery told GE shareholders late a year ago he plans to pare GE down to three core businesses: power, aviation and healthcare, a departure from the deal-driven empire building of his predecessors, Jeff Immelt and Jack Welch. One-thousand units are in the pipeline. "There has been a relationship between (us) that goes back decades", he said.

It's more than analysts had been expecting, but the headline valuations for GE divestitures aren't always what they appear. The sale of the industrial solutions business to ABB fetched $2.6 billion in cash.

The transaction is valued at $10 billion following a $1.1 billion net tax benefit accruing to the merged company.

Wells Fargo's Allison Poliniak-Cusic likes the deal for WAB, "with GE's locomotive positioning coupled with its increasing focus on digital and analytics being additive to Wabtec's portfolio". Also missing from today's deal announcement is any sort of specifics for how pension liabilities associated with the transportation unit will be handled. The great risk in a GE breakup is that it sells off its assets to bring in cash and is left with a mountain of liabilities. Wabtec shareholders will retain 49.9% of the combined company.

The deal, first reported by Reuters on Sunday, is the biggest to be inked thus far by GE Chief Executive John Flannery since he announced a major overhaul of the USA industrial conglomerate late past year.

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