General Electric said Monday it will merge its train engine division with railroad manufacturing firm Wabtec in an $11.1 billion deal that marks the biggest step so far in GE's restructuring of its operations.
Last month, the CEO of General Electric, Flannery, had told its shareholders that the company is "keenly aware of the pain" caused by its poor performance and dividend cut a year ago.
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". That was in line with April reports saying GE might spin off its rail unit through a "hybrid deal" that avoids a big tax bill. 412,225 shares of the company traded hands, compared to its average volume of 967,086.
GE has combined its business of oilfield services with that of Baker Hughes.
"We've always been quite interested".
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Wabtec CEO Raymond Betler will stay in his job and Albert Neupaver was reappointed as executive chairman. Once the transaction is completed, Stephane Rambaud-Measson will become president and CEO of Wabtec's Transit Segment and Rafael Santana will become president and CEO of Wabtec's Freight Segment. "There has been a relationship between (us) that goes back decades", he said.
The resulting company will have approximately $8 billion in revenues, with 27,000 employees across 50 countries, the companies said.
GE's transportation business, which generated revenue of $3.9 billion a year ago, is already larger than its sole close peer in the railroad engines business, Caterpillar Inc, selling equipment and services to a global fleet of roughly 23,000 locomotives, Santana said. The company has a market capitalization of $9.17 billion, a PE ratio of 28.71, a price-to-earnings-growth ratio of 2.15 and a beta of 0.91. It's also tax-efficient: The transaction allows for $150 million of annual cash tax savings for the next 15 years. It has been speculated that GE's deal with Wabtec will now provide a ray of hope for the former's ailing businesses.
GE is selling its locomotive unit at a low point for the business, with the division previous year recording its lowest annual revenue since 2010.
Share price of GE stock lost close to half if overall value over the last 12 months, and the conglomerate has worked with Trian Fund Management an activist shareholder and member of the board to turn business around.