The boards of General Electric and Wabtec on May 21, 2018 approved the merger of GE Transportation with Wabtec in a deal worth $11.1 billion. The merger will make Wabtec a Fortune 500 company and a major player in the railway equipment and services market, with operations in more than 50 countries.
The transaction is valued at $10 billion following a $1.1 billion net tax benefit accruing to the merged company. Synergies of around $250 million are also anticipated by 2022. The merged company will have revenues of $8 billion with more than 23,000 locomotives in its global installed base and components on virtually all North American locomotives and freight cars.
Under the terms of the transaction, GE will receive $2.9 billion in cash for a 9.9% stake in the new company, while its shareholders will receive a 40.2% stake. Wabtec shareholders will hold the remaining 49.9% stake. Wabtec says it has obtained full commitments for a $2.9 billion bridge facility and expects to put in place permanent debt financing prior to closing the deal.
Wabtec Chairman Albert Neupaver has been named Executive Chairman of the merged company, and Raymond Betler will be President and CEO, retaining his current Wabtec role. Wabtec’s corporate headquarters will remain in Wilmerding, Pa. GE Transportation President Rafael Santana will become President and CEO of Wabtec’s freight division, headquartered in Chicago, and Stéphane Rambaud-Measson will become President and CEO of Wabtec’s Transit Division, based in Paris.
Both companies say they expect “to benefit from the cyclical tailwinds they are experiencing as industry conditions improve.” 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. Its order backlog of about $18 billlion includes about 1,800 new locomotives and another 1,000 to be rebuilt and upgraded. GE Transportation has received orders worth $3.6 billion in the past two quarters. Wabtec says it achieved a strong first quarter and forecasts “robust growth for the year with record backlog.”
“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,” Betler said. “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.”
“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,” Santana says. “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, short lines [and regionals] and international railroads, and are confident in the compelling long-term opportunities and synergies before us.”
Final closure of the deal is expected in early 2019, subject to regulatory and closure conditions.
With additional reporting from Railway Age Editor-in-Chief William C. Vantuono