(WAB 99.87, +4.68, +4.92%)
is merging with General Electric's (GE 15.505, +0.535, +3.57%)
Transportation unit. GE will receive $2.9 bln in cash at closing and a 50.1%
ownership interest in the combined company, with Wabtec shareholders retaining
49.9% of the combined company. The transaction is valued at ~$11.1 bln. When
adjusted for the net tax benefit of $1.1 bln accruing to the combined company,
the transaction value is $10 bln.
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.
Both companies are expected to benefit from the cyclical tailwinds they are experiencing as industry conditions improve. GE Transportation revenues and EBIT are expected to grow at double digit CAGRs (compound annual growth rates) from 2017 to 2019 as the cycle rebounds from trough levels. The GE Transportation business is positioned for a significant rebound, with estimated adjusted EBITDA growing from about $750 mln in 2018 to between $900 mln and $1 bln in 2019. The backlog of~$18 bln includes about 1,800 new locomotives and ~1,000 to be modernized. GE Transportation has received $3.6 bln in orders in the last two quarters. Wabtec reported a strong Q1, also forecasting robust growth for the year with record backlog.
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 mln estimated to be achieved by 2022.
It seems this deal may have a good outcome for both sides. The $10 bln price tag is towards the high end of expectations for GE's unit. GE Chief Executive John Flannery is looking to divest under-performing businesses as the company struggles. Wabtec was up ~13% since Bloomberg reported the companies were in talks on April 20. Wabtec will have ~$8 bln in revenues, a more diversified business mix, higher margins, and ~15% cash EPS accretion in year one. The combination will make Wabtec a Fortune 500, global transportation leader in rail equipment, software, and services, with operations in more than 50 countries.
- OUR VIEW
- LEARNING CENTER