GE marks €9.5bn revamp

Richard Clough

General Electric (GE) chief executive John Flannery is taking the biggest step yet in his plan to revitalise the beleaguered manufacturer, agreeing to merge its century-old train engine business with Wabtec in a deal valued at $11.1bn (€9.4bn).

GE and its shareholders will own 50.1% of the combined company, giving the parent an ongoing stake in the recovery after its rail unit struggled with a lengthy slump in the north American freight market. Under the terms of the tax-free transaction, GE will receive an upfront cash payment of $2.9bn.

The deal furthers Flannery’s efforts to streamline operations and reduce the complexity that he blames for deepening the company’s problems. Faced with one of the worst slumps in GE’s 126-year history, the CEO has pledged to cut costs and refocus the Boston-based manufacturer on markets, such as aviation and energy.

The combination will transform rail-equipment maker Wabtec, which will roughly double its annual revenue by adding one of the world’s largest manufacturers of freight locomotives. The Pennsylvania-based company said it was attracted to the complementary products and a growing order book after several lean years for the industry.

GE Transportation, which had about 8,000 employees at the beginning of the year, has faced falling sales after a decline in north American rail-shipping volume left an oversupply of trains.

GE said in July that it would cut hundreds of jobs while ending most locomotive manufacturing in Erie in Pennsylvania, and shifting some work to a non-union factory in Fort Worth in Texas.

Despite the industry’s challenges, GE Transportation routinely ranks among GE’s most-profitable units. It generated operating income of $824m, with a profit margin of almost 20%.

US railroads are now poised to order more equipment to keep up with rising shipments of commodities such as grain and the sand used in hydraulic fracturing for oil and natural gas.

Over the past two quarters, GE Transportation has received $3.6bn in new orders, the company said. Wabtec also expects to grow this year.

Under the terms of the deal, GE will sell a portion of GE Transportation to Wabtec and execute a spinoff of other assets, which will then be merged with Wabtec.

Wabtec, which builds locomotives and offers services and other products to the freight-rail and passenger-transit markets, generated $3.9bn in sales last year.

--Bloomberg


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