Wabtec Corp. and General Electric (GE) announced Jan. 25 that the planned merger of Wabtec and GE Transportation is expected to close by the end of February 2019, “subject to satisfaction or waiver of customary closing conditions.” The two have modified the terms of their merger agreement and have publicly filed S4 and S1 registration statements, respectively, with the U.S. Securities and Exchange Commission (SEC).
At closing, Wabtec plans to report its 2018 fourth-quarter and full-year results, and to provide 2019 financial guidance for the combined company. “Together, Wabtec and GE Transportation will create a stronger, more diversified transportation and logistics company,” Wabtec said.
Under the terms of the modified arrangements, which have been approved by Wabtec’s Board and by the Finance and Capital Allocation Committee of the GE Board, GE will complete the spinoff of a portion of GE Transportation to GE shareholders and immediately thereafter merge GE Transportation into a wholly owned subsidiary of Wabtec.
Upon closing, Wabtec shareholders will own approximately 50.8% of Wabtec on a fully diluted basis, compared to approximately 49.9% under the previous terms. GE shareholders will directly own approximately 24.3% of Wabtec on a fully diluted basis and GE will own common stock and non-voting convertible preferred stock that together represent approximately a 24.9% economic interest in Wabtec on a fully diluted basis, up from the 9.9% stake that GE would have owned under the originally announced transaction terms.
GE will also receive approximately $2.9 billion in cash at closing, as announced in May 2018. In aggregate, Wabtec will issue 3.3 million fewer shares than originally contemplated. Under this modified structure, the spinoff will be considered a taxable dividend for U.S. federal income tax purposes.
GE will sell down its interest in Wabtec “subject to certain staggered lock-up provisions and size constraints designed to facilitate an orderly disposition of its shares.” The GE interest is valued at $3.4 billion based on Wabtec’s current market stock price of $71.03. No sales can be made for 30 days post-closing, and GE must complete all sales before the third anniversary of the merger closing, subject to limited exceptions for market conditions.
“We believe the modified terms enhance the benefits of the merger to our shareholders and are working to complete it quickly,” said Raymond T. Betler, President and CEO of Wabtec. “We also believe this combination will drive increased value to our customers, employees and shareholders. We look forward to operating as a combined business for the balance of 2019. As a combined company, Wabtec and GE Transportation will bring to market a robust installed base of more than 23,000 locomotives globally, expanded global reach, a strong mix of freight and transit products and services, and increased innovation to solve our customers’ toughest challenges. The combined company will be a technology and innovation leader in the rapidly evolving rail industry, and we will have the critical mass to be an effective global competitor.”
“Today’s announcement is a significant milestone in GE’s portfolio transformation,” said H. Lawrence Culp, Jr., Chairman and Chief Executive Officer of GE. “With the increase in GE’s stake in Wabtec, and increased proceeds as we sell down this stake, this transaction will further strengthen our balance sheet and support our de-leveraging plan. The combined business will be better-positioned with an improved business mix and enhanced opportunities for faster innovation in key growth areas.”