GE Is Said in Talks to Unload Rail Unit in Deal With Wabtec

(Bloomberg) -- General Electric Co., the beleaguered manufacturer undergoing a strategic review, is in talks to sell its century-old locomotive business to rail-equipment maker Wabtec Corp., according to people familiar with the matter.

GE is considering combining its rail division with Wabtec, which has a market valuation of $8 billion, said the people, who asked not to be identified because talks are private. The transportation unit could be worth as much as $6.8 billion in a sale, Julian Mitchell, an analyst at Barclays Plc, wrote in a note to clients on April 17.

A deal hasn’t been reached and talks may still fall apart, they said. GE may also choose to pursue an initial public offering or other strategic option for the business, they said.

Wabtec erased earlier losses on the news and jumped as much as 6.8 percent, the biggest intraday gain since October. The shares rose 4.6 percent to $87.68 at 3:03 p.m. in New York, while GE advanced 4.3 percent to $14.60.

Representatives for GE and Wilmerding, Pennsylvania-based Wabtec declined to comment.

Unloading the rail operations will help streamline GE and reduce the complexity that Chief Executive Officer John Flannery blames for exacerbating the company’s problems. After taking the helm last year, he promised to shed at least $20 billion of assets -- including GE Transportation -- and cut costs to pull GE out of one of the deepest slumps in its 126-year history.

GE shares on Friday surged to the biggest intraday gain in three years after announcing strong earnings and reaffirming its 2018 forecast. The Boston-based company also gave more detail on the future of the transportation unit, saying a disposition plan will be finalized in the second quarter.

Sales Slowed

GE Transportation, one of the world’s largest makers of freight locomotives and rail equipment, has faced falling sales after a decline in North American shipping volume left an oversupply of trains. Revenue slumped 11 percent last year to $4.2 billion, just 3.3 percent of GE’s total.

Wabtec, led by Chief Executive Officer Raymond Betler, reported 2017 sales of $3.9 billion. The company builds locomotives and offers services and other products to the freight rail and passenger transit markets.

Wabtec traces its roots to 1869, when it was known as Westinghouse Air Brake. Since becoming independent in 1990 through a management buyout, Wabtec grew with the purchase of French manufacturer Faiveley Transport in 2016.

GE’s rail unit had about 8,000 employees at the beginning of the year, down from 10,000 a year earlier. GE said in July that it would cut hundreds of jobs while ending most locomotive manufacturing in Erie, Pennsylvania, and shifting some work to a non-union factory in Fort Worth, Texas.

Despite the industry’s challenges, GE Transportation routinely ranks among GE’s most-profitable units. It generated operating income of $824 million last year, with a profit margin of almost 20 percent.

After several lean years, railroads are now poised to order more equipment to keep up with rising shipments of commodities such as coal, grain and the sand used in hydraulic fracturing for oil and natural gas. GE Transportation announced a deal in December to sell 200 locomotives to Canadian National Railway Co., the largest order by a major North American railroad in three years.

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