General Electric CEO John Flannery is taking the biggest step yet in his plan to revitalize the beleaguered manufacturer, agreeing to merge its century-old locomotive business with Wabtec Corp. in a deal valued at $11.1 billion.
GE and its shareholders will own 50.1 percent of the combined operations, distancing the company from the cyclical rail market while still leaving it with an ongoing stake in the recovery of North American freight demand.
Under the terms of the tax-free transaction, GE will receive an upfront cash payment of $2.9 billion, the companies said Monday in a statement.
The deal furthers Flannery’s efforts to streamline operations and reduce the complexity that he blames for deepening the company’s problems.
Faced with one of the worst slumps in GE’s 126-year history, the CEO has pledged to cut costs and refocus the Boston-based manufacturer on key markets, such as aviation and energy.
The combination will transform rail-equipment maker Wabtec, which will roughly double its annual revenue by adding one of the world’s largest manufacturers of freight locomotives. The Wilmerding, Pa.-based company said it was attracted to the complementary products and a growing order book after several lean years for the industry.
The deal will “improve our ability to address the cyclicality” associated with the freight industry, Wabtec CEO Raymond Betler said on a conference call. He will remain in the same role after the deal closes.
GE Transportation, which had about 8,000 employees at the beginning of the year, has faced falling sales after a decline in North American rail-shipping volume left an oversupply of trains. GE said in July that it would cut hundreds of jobs while ending most locomotive manufacturing in Erie, Pa., and shifting some work to a non-union factory in Fort Worth, Texas.