General Electric (GE) has agreed to merge its transportation unit with rail equipment manufacturer Wabtec Corp. (WAB) in a deal worth $11.1 billion. GE will hold a 50.1% stake in the combined company with Wabtec holding the rest. Under the terms of the agreement, which is expected to close early next year, GE will get an upfront cash payment of $2.9 billion.
Rafael Santana, chief of GE’s transportation unit will become President and Chief Executive Officer of Wabtec’s Freight division while Wabtec’s CEO Raymond Betler will become President and CEO of the combined entity.
This is the largest deal so far under CEO John Flannery who has been trying to turn the company around through expense reduction and other measures. GE has been cutting down weight by spinning off several of its business divisions through strategic transactions. These deals are expected to create shareholder value while also bringing in extra cash.
GE will get an upfront cash payment of $2.9 billion
GE expects to reduce expenses by $2 billion this year and also to halve its dividend. GE Transportation, which produces train engines and mining equipment, generates close to $5 billion in revenues. The combined company is expected to make close to $8 billion in revenue. The merger is estimated to bring in cost savings of more than $200 million over the next four years. The deal is being done as a Reverse Morris Trust transaction, which is expected to bring in a substantial amount of tax savings.