Wabtec Corporation (also known as Westinghouse Air Brake Technologies) has entered into a definitive agreement to combine with GE Transportation, a unit of General Electric Company, and major producer of large railroad locomotives. The combination will make Wabtec a Fortune 500, global transportation leader in rail equipment, software and services, with operations in more than 50 countries.
Under the agreement, which has been approved by the Boards of Directors of Wabtec and GE, GE will receive $2.9 billion in cash at closing and GE and its shareholders will receive a 50.1% ownership interest in the combined company, with Wabtec shareholders retaining 49.9% of the combined company.
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. Wabtec and GE shareholders will have ownership in a combined company with significantly expanded margins, a highly attractive growth profile based on an improved business mix, expanded global reach, and faster innovation in key growth areas.
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 from 2017A to 2019E 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 million in 2018 to between $900 million and $1 billion in 2019. The backlog of approximately $18 billion includes about 1,800 new locomotives and approximately 1,000 to be modernized. GE Transportation has received $3.6 billion in orders in the last two quarters. Wabtec reported a strong Q1, also forecasting robust growth for the year with record backlog.
Effective immediately, Wabtec Chairman Albert J. Neupaver has been re-appointed executive chairman of the company, while Raymond T. Betler remains Wabtec’s president and CEO. Following the completion of the transaction, Stéphane Rambaud-Measson will become president and CEO of Wabtec’s Transit Segment; and Rafael Santana, president and CEO of GE Transportation, will become president and CEO of Wabtec’s Freight Segment.
Betler said: “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. 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.”
Santana said: “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. 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, Shortlines and international railroads, and are confident in the compelling long-term opportunities and synergies before us.”
Following the completion of the transaction, Wabtec’s corporate headquarters will remain in Wilmerding, Pa., near Pittsburgh. Wabtec’s Freight Segment will be headquartered in Chicago, and Wabtec’s Transit Segment headquarters will remain in Paris.
The transaction is expected to close in early 2019, subject to customary closing conditions, approval by Wabtec shareholders, and regulatory approvals.
Wabtec reported sales of $3.9 billion in 2017. GE Transportation had been based in Erie, Pennsylvania, for over a century before moving its headquarters in 2012 to Chicago. GE Transportation reported 2017 revenue of $4.2 billion in 2017, down from year-earlier revenue of $4.7 billion.
Wabtec Corporation (Westinghouse Air Brake Technologies Corporation) was formed by the merger of the Westinghouse Air Brake Company (WABCO) and MotivePower Industries Corporation in 1999. MotivePower Industries, can be traced back to 1972, with the formation of the MK Rail division by the Morrison Knudsen group and the purchase of a manufacturing facility in Boise. In 1994 Morrison Knudsen created a subsidiary MK Rail Corporation; during the first half of the same decade the MK Rail group expanded with the acquisition of various other locomotive component companies. In 1996, MK Rail group separated from the parent Morrison Knudsen and adopted the name MotivePower Industries Corporation.
GE Transportation is a $5.8 billion segment of GE and manufactures for the railroad, marine, mining, drilling and power generation markets. Besides its own brands, the group also owns the Jenbacher range of natural gas engines.