Railworks America

General Electric is nearing a deal to merge its transportation business, which manufactures train engines, with Wabtec, a U.S. maker of equipment for the rail industry, two people familiar with the matter said on Sunday.

A deal that could value the combined company at more than $20 billion could be announced as early as this week, the sources said, asking not to be identified because the negotiations are confidential.

It would be the biggest deal thus far to be inked by GE Chief Executive Officer John Flannery, who took over last August with a mandate to slash costs and boost the U.S. industrial conglomerate's plummeting stock price.

There is always a possibility that the deal talks, which center on using a tax-efficient structure called a Reverse Morris Trust, could collapse at the last minute, the sources cautioned.

GE and Wabtec did not immediately respond to requests for comment.

Flannery told GE's annual shareholder meeting last month that the company is "keenly aware of the pain" caused by its poor performance and dividend cut last year. Executives are trying to turn around the ailing power and oil and gas businesses, he told shareholders, adding that there is evidence of "green shoots" of improvement.

GE has taken several actions to prune its portfolio over the years, shedding plastics, NBCUniversal and most of its GE Capital business. It also combined its oilfield services business with Baker Hughes. (CNBC is a unit of NBC Universal.)

GE's transportation business, which generated revenue of $4.7 billion, manufactures freight and passenger trains, marine diesel engines and mining equipment, among other products.

Wabtec, which has a market capitalization of $9.2 billion, manufactures equipment for locomotives, freight cars, and passenger transit vehicles.

Following a board of director shake-up, Flannery has pledged to cut $2 billion in cost for 2018 and to slash the company's once-coveted dividend in half.

GE's stock has lost about half its value in the last year, and the company has been working with activist hedge fund Trian Fund Management, which sits on its board of directors, to turn the business around.

A Reverse Morris Trust transaction allows a company to avoid a big tax bill by spinning off a unit that it wants to divest and simultaneously merging it with another company.

Correction: The combined GE and Wabtec may be valued at $20 billion or more.
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This will be interesting. I wonder if Wabtec will buy the designs to the GE engines and engine designs, or if they will make their own style of units.

They'd continue the existing Evolution series. Why reinvent the wheel?

From the WSJ today:
The head of the largest freight railroad in North America says he’s happy with General Electric Co.’s GE -7.26% $11 billion deal to merge its railroad business with rail equipment maker Wabtec Corp. WAB -0.83%

“I think that’s a good thing,” Lance Fritz, chief executive of Union Pacific Corp. UNP 0.94% , said in an interview Wednesday. “Because it’s important that GE continues to participate in the marketplace.”

GE is one of the world’s biggest makers of freight locomotives, but its transportation unit has struggled to reverse falling profit and sales. The division is one of Union Pacific’s two locomotive suppliers; the other is Electro-Motive Diesel, which is owned by Caterpillar Inc.
Also in Logistics...



GE and Wabtec announced the deal this week, part of GE’s efforts to reset its industrial portfolio under new Chief Executive John Flannery.

Wabtec, formally known as Westinghouse Air Brake Technologies Corp., makes equipment for transit systems and freight railroads. The company and GE have been in periods talks about a combination over the years, and the deal made sense given the downturn in locomotive demand, Wabtec’s chief executive, Ray Betler, said Monday.

“Once GE indicated they didn’t want to own GE Transportation anymore, what we cared about is, we need you to find a home that’s stable, that’s going to be around for a while,” Mr. Fritz said. “And Wabtec is going to provide that. Wabtec’s been in the industry a long time, they understand it, they’re committed to it.”