Why General Electric Is Spinning Off Its Transportation Business


GE will receive a United States dollars 2.9 billion up-front payment in cash and its shareholders will own 50.1 percent of the combined company, while Wabtec shareholders will own the rest, the companies said in a statement.

The deal, first reported by Reuters on Sunday, is the biggest to be inked thus far by GE Chief Executive John Flannery since he announced a major overhaul of the U.S. industrial conglomerate late past year.

The parent had been shopping the unit since November, when GE Chairman and CEO John L. Flannery, stung by the company's poor financial performance and confronting a top-heavy organization, vowed to streamline the Boston-based colossus.

The transportation business of GE generates revenue of almost $4.7 billion by the manufacture of freight and passenger trains, marine diesel engines and mining equipment among other products.

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"GE Transportation is positioned for a substantial rebound", the release read. Flannery is considering sales, spinoffs and even a broader breakup of GE's core aviation, power and health businesses. It's also tax-efficient: The transaction allows for $150 million of annual cash tax savings for the next 15 years. And it's just Wabtec, with none of the ham-handed nonsense that gave us Baker Hughes, a GE Co. Progressive Investment Management Corp now owns 32,278 shares of the transportation company's stock valued at $2,627,000 after acquiring an additional 1,011 shares during the period. GE was among Monday's top performers on the Dow Jones industrial average.

General Electric is one of the world's biggest makers of locomotives. The transportation company reported $0.92 EPS for the quarter, topping analysts' consensus estimates of $0.90 by $0.02. He expects conditions to improve over the next two years as the industry comes off a trough in demand in 2017. Santana is now president and CEO of GE Transportation. Wolfe Research upgraded shares of Wabtec from a "market perform" rating to an "outperform" rating and set a $88.00 price objective for the company in a report on Friday, February 16th.

Wabtec chief executive Raymond T. Betler will continue as president and CEO of the merged company while Wabtec Chairman Albert J. Neupaver has been re-appointed as executive chairman. Wabtec's corporate headquarters will remain in Wilmerding, Pa. GE Transportation President Rafael Santana will become President and CEO of Wabtec's freight division, headquartered in Chicago, and Stéphane Rambaud-Measson will become President and CEO of Wabtec's Transit Division, based in Paris.


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