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General Electric: Thoughts On The 'Reworked' Wabtec Deal

January 28, 2019

Summary:

- General Electric and Wabtec modified their asset merger agreement.

- I believe that both companies should be viewed a winners under the new agreement, but it is a different story for GE shareholders.

- I plan to stay long both General Electric and Wabtec, and I look forward to reading your thoughts about the new deal.

 

On January 25, 2019, General Electric ($GE) disclosed that it modified the terms of the asset merger agreement with Westinghouse Air Brake Tech. (WAB), or Wabtec. After this news hit the wire, GE shares were up almost 4.5% but WAB shareholders were not as lucky (WAB shares finished the trading day down slightly over 3.5%).

 

Shareholders of both companies will be materially impacted by the disclosed modifications to the deal but, in my mind, the market got it wrong, at least in the short-term. To me, WAB walked away with a great long-term deal (majority stake but will have to give up cash in the new future) but I believe that GE (the company) will also greatly benefit from the restructured agreement. As such, GE's management team slapped shareholders in the face by reworking a deal that now directly benefits others more than them (i.e., GE the company and Wabtec are the real winners) but I believe that the slap was a necessary evil.

 

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