General Electric Co. is nearing a deal to merge its transportation business with Wabtec Corp, a US maker of equipment for the rail industry, Reuters reports, citing sources familiar with the matter.
A deal valuing the combined business at more than US$20 billion could be announced as early as this week, according to the report.
It would be the biggest deal thus far to be inked by GE CEO John Flannery, who took over last August with a mandate to slash costs and boost the US industrial conglomerate’s plummeting stock price.
There is always a possibility that the deal talks, which center on using a tax-efficient structure called a Reverse Morris Trust, could collapse at the last minute, sources cautioned.
Flannery told GE’s annual shareholder meeting last month that the company is “keenly aware of the pain” caused by its poor performance and dividend cut last year.
Executives are trying to turn around the ailing power and oil and gas businesses, he told shareholders, adding that there is evidence of “green shoots” of improvement.
GE has taken several actions to prune its portfolio over the years, shedding plastics, NBCUniversal and most of its GE Capital business. It also combined its oilfield services business with Baker Hughes.
GE’s transportation business, which generated revenue of US$4.7 billion, manufactures freight and passenger trains, marine diesel engines and mining equipment, among other products.
Wabtec, which has a market capitalization of US$9.2 billion, makes equipment for locomotives, freight cars, and passenger transit vehicles.
A Reverse Morris Trust transaction allows a company to avoid a big tax bill by spinning off a unit that it wants to divest and simultaneously merging it with another company, Reuters noted.
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