Wabtec Corporation has entered into a definitive agreement to combine with GE Transportation, a unit of General Electric Company. The combination will make Wabtec a Fortune 500, global transportation leader in rail equipment, software and services, with operations in more than 50 countries.
Interestingly, for now it seems that the mining business of GE Transportation is included, which covers for example all the electric drives used in Komatsu mining trucks, as well as many other mining haul trucks from BELAZ and even some of the Chinese OEMs. It also includes GE’s innovative Digital Mine that combines advanced software, models, analytics and solutions to help miners enable safer mining practices for creating a more efficient and reliable mining ecosystem.
Wabtec is a rail specialist but has interesting technology areas relevant to trolley assist trucking for example, as a leading supplier of mining pantographs as well as motor-driven cable reels provide for the reliable power and media supply of large open-cast mining equipment such as bucket wheel excavators, conveyor belts, cable storage, stackers or hydraulic excavators. One of its most interesting orders was for BHP Olympic Dam, where it supplied pantographs via its Australian company Austbreck for the underground automated rail system at the mine.
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 modernised. 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.”
The two companies said the deal would “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.”
They also said it will capitalise 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.” But of course this autonomy capability is also mining relevant.
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 organisation 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.”
Following 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. The transaction is expected to close in early 2019, subject to customary closing conditions, approval by Wabtec shareholders, and regulatory approvals.