The first major move done by new General Electric CEO, John Flannery, was announced on Monday, May 21, 2018. In a deal reported to be around $11 billion, GE has merged its railroad business with Wabtec corp. thus dropping one of GE’s oldest operations in order to raise funds for the struggling conglomerate. Upon the close of the deal, GE will receive $2.9 billion in cash; with GE shareholders owning 40.2%, GE itself owning 9.9%, and Wabtec owning 49.9% of the new merged company. The deal is expected to be closed by early 2019 with Wabtec’s CEO and chairman holding their positions after the deal is finalized.
GE has been looking at options for the transportation division since at least last fall. The segment mainly produces freight locomotives, which sell for millions of dollars apiece. Although GE is one of the world’s biggest makers of freight locomotives, the business is cyclical and has been suffering lately from lowered demand. In 2017, the unit’s revenue slipped 11% and profit fell 23%. The division accounted for $4.2 billion of GE’s total 2017 revenue of $122.1 billion. GE and Wabtec said they expect the combination to eventually generate about $250 million in annual savings as well as tax benefits currently worth about $1.1 billion. GE will nominate three directors to the combined company’s board. Rather than a straight sale, the deal was structured in a way that would leave GE shareholders with a stake in a public company and avoid a big tax bill. It gives GE shareholders a chance to participate in the turnaround of the struggling business or cash out if they wish. GE is expected to reveal more about its portfolio plans soon.
This multi-billion dollar deal is a good example of how different companies’ core competencies can be joined together to be mutually beneficial for all parties involved. GE recognized that one aspect of its operations was not performing at its potential peak, so they brought in Wabtec in order to raise funds and be more profitable in the long term. All companies should be able to identify its core competencies and also identify its weaknesses; this helps company executives plan out how they will best utilize the company’s strengths and how to minimize their weaknesses. Have you taken a serious look at your company and what you’re doing right and where you can improve?