Wabtec Corporation (NYSE:WAB) has entered into a definitive
agreement to combine with GE Transportation, a unit of General
Electric Company (NYSE:GE). 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 transaction is
expected to be tax free to the companies' respective
shareholders.
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.
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.
KEY STRATEGIC BENEFITS
The combination is expected to:
- Drive increased value for shareholders: With
approximately $8 billion in combined revenues and a large global
installed base, the combined company will have a leading position
in key freight rail and transit geographies worldwide, and will be
well-positioned to serve customers as industry demand continues to
improve. 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 million estimated to be
achieved by 2022. Furthermore, the transaction will facilitate a
tax step-up with an NPV of approximately $1.1 billion of net tax
benefit accruing to the combined company.
- Create a leading equipment, aftermarket services, and
digital solutions provider across the transportation
ecosystem: From factory to final destination – and every
point in-between – the combined company will have the capabilities
to accelerate lifecycle solutions for the transportation industry
and unlock significant productivity for customers by improving
interoperability, efficiency, and competitiveness.
- Capitalize on digital/electronic technologies to
develop autonomous capabilities: Bringing together GE
Transportation’s digital solutions with Wabtec’s electronic systems
is expected to drive the advancement and implementation of
technology solutions to improve safety, efficiency and productivity
for the transportation industry. This combination will create a
compelling offering to meet the industry's rapidly growing demand
for rail performance, with the potential to unlock billions in
annual savings across freight rail for customers and
operators.
- Generate growth opportunities through the extensive
installed base and attractive global footprint: The
combined company will be a leading global freight and transit rail
provider with more than 23,000 locomotives in its global installed
base and content on virtually all locomotives and freight cars in
North America, creating significant opportunities for aftermarket
parts and services in key regions around the world.
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.”
GOVERNANCE AND HEADQUARTERSFollowing the
completion of the transaction, Wabtec’s corporate headquarters will
remain in Wilmerding, Pa. Wabtec’s Freight Segment will be
headquartered in Chicago, and Wabtec’s Transit Segment headquarters
will remain in Paris.
GE will designate for nomination three independent Board
members.
TRANSACTION DETAILSGE will receive a $2.9
billion up-front cash payment, and GE and its shareholders will
receive a 50.1% ownership interest in the combined company. Based
on Wabtec’s stock price on April 19, 2018, the last unaffected
trading day prior to media speculation regarding a potential
transaction, the value of the transaction is approximately $11.1
billion. When adjusted for the net tax step-up value of $1.1
billion accruing to the combined company, the transaction value is
$10 billion. The transaction is expected to be tax free to the
companies' respective shareholders.
Wabtec and GE Transportation will be combined in a transaction
in which GE will (i) sell a portion of the assets of GE
Transportation to Wabtec; (ii) complete the spin-off or split-off
of a portion of GE Transportation to GE shareholders; and (iii)
immediately thereafter merge GE Transportation with a wholly owned
subsidiary of Wabtec. Upon closing, Wabtec shareholders will
own approximately 49.9%, and it is planned that GE shareholders
will own approximately 40.2%, and GE will own 9.9% of the merged
company on a fully diluted basis. GE has the right to increase the
portion of the merged company owned by GE shareholders (subject to
a corresponding reduction in GE’s ownership).
Wabtec has obtained full commitments for a $2.9 billion bridge
facility and expects to put in place permanent debt financing prior
to closing. The Company is committed to maintaining a strong
investment grade credit rating profile and will use its strong cash
flow to prioritize debt reduction.
The transaction is expected to close in early 2019, subject to
customary closing conditions, approval by Wabtec shareholders, and
regulatory approvals.
CONFERENCE CALL AND INVESTOR INFORMATIONWabtec
and GE Transportation will host a conference call today at 8:30 am
Eastern to discuss the transaction. An audio webcast of the
investor call can be accessed at
https://engage.vevent.com/rt/kekstandcompanyao~1688628. A replay
will also be available at the same link after the event. You
can also access the link by going to www.wabtec.com and clicking on
the “Webcasts” tab in the “Investor” section. To view a copy
of the presentation that will be discussed during the call, click
on the “Press Releases” tab under “About Us” and click on the press
release titled “Wabtec and GE Transportation to Merge.” The
presentation will be included at the end of the press release on
the website.
ABOUT WABTECWabtec Corporation is a leading
global provider of equipment, systems and value-added services for
transit and freight rail. Through its subsidiaries, the
company manufactures a range of products for locomotives, freight
cars and passenger transit vehicles. The company also builds new
switcher and commuter locomotives, and provides aftermarket
services. The company has roughly 18,000 employees and facilities
located throughout the world. For the fiscal year ending December
31, 2017, Wabtec generated approximately $3.9 billion in revenue
and $504 million in adjusted EBIT (approximately 13% margin).
ABOUT GE TRANSPORTATIONGE Transportation helps
move the world and improve the world, as a global technology leader
and supplier of equipment, services and digital solutions to
the rail, mining, marine, stationary power and drilling industries.
GE Transportation’s innovations help customers deliver goods and
services with greater speed and savings using advanced
manufacturing techniques and connected machines. The company
employs approximately 9,000 employees worldwide. GE Transportation
has a backlog of roughly $18 billion, including approximately 1,800
new locomotives and roughly 1,000 locomotive modernized units. For
the fiscal year ending December 31, 2017, GE Transportation
generated approximately $3.9 billion in revenue and $701 million in
adjusted EBIT (approximately 18% margin).
ADVISORSGoldman Sachs & Co. LLC and Jones
Day are acting as financial advisors and legal counsel,
respectively, to Wabtec in the transaction.
Morgan Stanley & Co. LLC and Dyal Co. LLC are acting as
financial advisors, and Davis Polk & Wardwell LLP as legal
advisors, to GE in the transaction.
CONTACTS
InvestorsTim Wesley, Wabtec412-825-1543 or
twesley@wabtec.com
Matt Cribbins, GE617-443-3400
or matthewg.cribbins@ge.com
MediaDeia Campanelli,
GE
773-297-0482 or deia.campanelli@ge.com
Rich Stimel, Wabtec412-825-1423 or rstimel@wabtec.com
ADDITIONAL INFORMATION AND WHERE TO FIND ITIn
connection with the proposed transaction between GE and Wabtec,
Transportation Systems Holdings Inc., a wholly owned subsidiary of
GE created for the transaction (“SpinCo”), will file with the SEC a
registration statement on Form S-4/S-1 containing a prospectus or a
registration statement on Form 10 and Wabtec will file with the SEC
a registration statement on Form S-4 that will include a combined
proxy statement/prospectus. If the transaction is effected via an
exchange offer, GE will also file with the SEC a Schedule TO with
respect thereto. This communication is not a substitute for
any proxy statement, registration statement, proxy
statement/prospectus or other documents GE, Wabtec and/or SpinCo
may file with the SEC in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ
CAREFULLY AND IN THEIR ENTIRETY THESE DOCUMENTS WHEN THEY BECOME
AVAILABLE, ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, AND
OTHER DOCUMENTS FILED BY GE, WABTEC OR SPINCO WITH THE SEC IN
CONNECTION WITH THE PROPOSED TRANSACTION, BECAUSE THESE DOCUMENTS
WILL CONTAIN IMPORTANT INFORMATION. Investors and security
holders will be able to obtain free copies of these materials and
other documents filed with the SEC by GE, Wabtec and/or SpinCo
through the website maintained by the SEC at www.sec.gov.
Investors and security holders will also be able to obtain free
copies of the documents filed by GE, Wabtec and/or SpinCo with the
SEC from the respective companies by directing a written request to
GE and/or SpinCo at General Electric Company, 41 Farnsworth Street,
Boston, Massachusetts 02210 or by calling 617-443-3400. Investors
and security holders can also contact Wabtec at Wabtec Corporation,
1001 Air Brake Avenue, Wilmerding, PA 15148 or by calling
412-825-1543.
NO OFFER OR SOLICITATIONThis communication is
for informational purposes only and not intended to and does not
constitute an offer to subscribe for, buy or sell, the solicitation
of an offer to subscribe for, buy or sell, or an invitation to
subscribe for, buy or sell, any securities or the solicitation of
any vote or approval in any jurisdiction pursuant to or in
connection with the proposed transaction or otherwise, nor shall
there be any sale, issuance or transfer of securities in any
jurisdiction in contravention of applicable law. No offer of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended, and otherwise in accordance with applicable law.
PARTICIPANTS IN THE SOLICITATIONThis
communication is not a solicitation of a proxy from any investor or
security holder. GE, Wabtec, SpinCo, their respective
directors, executive officers and other members of its management
and employees may be deemed to be participants in the solicitation
of proxies from shareholders of Wabtec in connection with the
proposed transaction. Information regarding the persons who
may, under the rules of the SEC, be deemed participants in the
solicitation of proxies in connection with the proposed
transaction, including a description of their direct or indirect
interests, by security holdings or otherwise, will be set forth in
the relevant materials when filed with the SEC. Information
regarding the directors and executive officers of GE is contained
in GE’s proxy statement for its 2018 annual meeting of
stockholders, filed with the SEC on March 23, 2018, its Annual
Report on Form 10-K for the year ended December 31, 2017, which was
filed with the SEC on February 23, 2018, its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2018, which was filed
with the SEC on May 1, 2018 and certain of its Current Reports
filed on Form 8-K. Information regarding the directors and
executive officers of Wabtec is contained in Wabtec’s proxy
statement for its 2018 annual meeting of stockholders, filed with
the SEC on April 5, 2018, its Annual Report on Form 10-K for the
year ended December 31, 2017, which was filed with the SEC on
February 26, 2018, its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2018 which was filed with the SEC on May 4,
2018 and certain of its Current Reports filed on Form 8-K.
These documents can be obtained free of charge from the sources
indicated above.
CAUTION CONCERNING FORWARD-LOOKING
STATEMENTSThis communication contains “forward-looking”
statements as that term is defined in Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended by the Private Securities Litigation Reform
Act of 1995, including statements regarding the proposed
transaction between GE and Wabtec. All statements, other than
historical facts, including statements regarding the expected
timing and structure of the proposed transaction; the ability of
the parties to complete the proposed transaction considering the
various closing conditions; the expected benefits of the proposed
transaction, including future financial and operating results, the
tax consequences of the proposed transaction, and the combined
company’s plans, objectives, expectations and intentions; legal,
economic and regulatory conditions; and any assumptions underlying
any of the foregoing, are forward-looking statements.
Forward-looking statements concern future circumstances and
results and other statements that are not historical facts and are
sometimes identified by the words “may,” “will,” “should,”
“potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,”
“estimate,” “overestimate,” “underestimate,” “believe,” “could,”
“project,” “predict,” “continue,” “target” or other similar words
or expressions. Forward-looking statements are based upon
current plans, estimates and expectations that are subject to
risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated or anticipated by such forward-looking
statements. The inclusion of such statements should not be
regarded as a representation that such plans, estimates or
expectations will be achieved. Important factors that could
cause actual results to differ materially from such plans,
estimates or expectations include, among others, (1) that one or
more closing conditions to the transaction, including certain
regulatory approvals, may not be satisfied or waived, on a timely
basis or otherwise, including that a governmental entity may
prohibit, delay or refuse to grant approval for the consummation of
the proposed transaction, may require conditions, limitations or
restrictions in connection with such approvals or that the required
approval by the stockholders of Wabtec may not be obtained;
(2) the risk that the proposed transaction may not be
completed on the terms or in the time frame expected by GE or
Wabtec, or at all; (3) unexpected costs, charges or expenses
resulting from the proposed transaction; (4) uncertainty of
the expected financial performance of the combined company
following completion of the proposed transaction; (5) failure
to realize the anticipated benefits of the proposed transaction,
including as a result of delay in completing the proposed
transaction or integrating the businesses of GE, Wabtec and SpinCo;
(6) the ability of the combined company to implement its
business strategy; (7) difficulties and delays in achieving
revenue and cost synergies of the combined company;
(8) inability to retain and hire key personnel; (9) the
occurrence of any event that could give rise to termination of the
proposed transaction; (10) the risk that stockholder
litigation in connection with the proposed transaction or other
settlements or investigations may affect the timing or occurrence
of the proposed transaction or result in significant costs of
defense, indemnification and liability; (11) evolving legal,
regulatory and tax regimes; (12) changes in general economic
and/or industry specific conditions; (13) actions by third
parties, including government agencies; and (14) other risk factors
as detailed from time to time in GE’s and Wabtec’s reports filed
with the SEC, including GE’s and Wabtec’s annual report on Form
10-K, periodic quarterly reports on Form 10-Q, periodic current
reports on Form 8-K and other documents filed with the SEC.
The foregoing list of important factors is not exclusive.
Any forward-looking statements speak only as of the date of this
communication. Neither GE nor Wabtec undertakes any
obligation to update any forward-looking statements, whether as a
result of new information or development, future events or
otherwise, except as required by law. Readers are cautioned
not to place undue reliance on any of these forward-looking
statements.
1 Based on Wabtec share price of $83.79 on 19-Apr-2018, the last
unaffected trading day prior to media speculation regarding a
potential transaction, and Wabtec fully diluted share count.
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