GE Transportation, a foundation piece of the company built by inventor Thomas Edison, a business founded in Erie, Pa., and based there for most of its 110-year history, is merging with another Pennsylvania company in a deal worth $11.1 billion.
GE Transportation, best known for its locomotives, is joining forces with Westinghouse Air Brake Technologies Corp., which does business as Wabtec. The company is based in Wilmerding, Pa., about 15 minutes from Pittsburgh.
Under terms of the agreement, already approved by the boards of directors of both companies, GE will receive $2.9 billion in cash at closing and GE and its shareholders will receive a 50.1% ownership interest in the combined company.
Wabtec shareholders will retain a 49.9% interest in the combined company. Provided the deal is approved by the Securities and Exchange Commission, most likely early next year, GE Transportation would become a wholly owned subsidiary of Wabtec, which would become a Fortune 500 company with revenues of more than $8 billion. The combined company would have about 27,000 employees, including 9,000 who now work for GE.
Wabtec, which has been supplying GE Transportation with brakes for years, is described in a news release as “a leading global provider of equipment, systems and value-added services for transit and freight rail. Through its subsidiaries, the company manufactures a range of products for locomotives, freight cars and passenger transit vehicles.”
For its part, Wabtec acquires North America’s leading producer of freight locomotives and a company with a $2.5 billion contract to build locomotives at a new factory in India as well as manufacturing sites and service centers worldwide.
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For all the companies’ common customers, the firms compete in few areas, GE Transportation spokeswoman Deia Campanelli said.
While the entire company will operate under the Wabtec name, Campanelli said the GE Transportation name is expected to continue in some fashion.
“All the details haven’t been worked out, but that brand will carry forward,” she said.
Scott Slawson, president of Local 506 of the United Electrical, Radio and Machines Workers of America, which represents about 1,500 employees at the GE Transportation plant in Erie, said there will be a lot of details for the union to work through between the time the deal closes and the company’s contract with the union expires in June 2019.
“If Wabtec is going to be a new employer to us, there is a lot of benefits to employees that we currently have with GE. We have to bargain those things away from GE and make sure everyone gets what is in the contract. There is never anything easy. It means a lot of work. You have to be on your toes.”
That doesn’t mean he takes a negative view of the merger.
“I think we always look at everything in a positive light,” Slawson said. “At this point, we have no reason to look at this any differently.”
The announcement of the merger comes at a time when workers at GE Transportation’s Erie plant are building what the company has said will be their last production locomotives.
The company, now based in Chicago, announced plans in the summer of 2017 to end locomotive production in Erie by the end of this year. Much of that work has been moved to the company’s nonunion plant in Fort Worth, Texas.
Slawson hopes that new ownership might revisit that decision.
“I think a fresh set of eyes might look at things differently,” he said. “Mistakes are made. Hopefully, our new employer is willing to listen.”
Slawson has long maintained that the expertise and flexibility of the Erie plant and its workers make it valuable to the company.
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Jake Rouch, vice president of economic development for the Erie Regional Chamber and Growth Partnership, said he had been saying for a while that the best buyer would be a company with a long history of manufacturing.
“I think from an opportunity standpoint for Erie, I think it’s an ideal buyer,” he said. “They are in the same industry segment. It really puts together a transportation, rail and off-road mining powerhouse. As far as someone buying it that can capitalize on the strengths and weaknesses, it’s a perfect fit.”
Does Rouch see a better opportunity for employees in Erie under new ownership?
Rouch said he doesn’t think their opportunities are any better, but he doesn’t think they are any worse.
“I have felt all along that whoever bought GE Transportation would evaluate where work was done very objectively and based upon all the variables in play and without emotion,” Rouch said. “I think the variables that have led to work transfers in the first place, which are about competitiveness and production issues, those remain no matter who the buyer was. How they evaluate and determine where is the best place is where the work will go.”
The merger announcement comes at a time when the rail freight industry seems to be gathering steam, bouncing back from a historic slowdown.
“The market is coming back,” Campanelli said. “It’s poised. You are starting to see positive signs of recovery whether you are talking about locomotives or mining equipment.”
The numbers suggest those are more than just talking points. According to a statement from the company, GE Transportation has a backlog that includes about 1,800 new locomotives and 1,000 locomotives waiting to be modernized.
John Flannery, the newly minted General Electric CEO, who was faced with the challenge of crawling out from beneath a mountain of financial trouble when he took over the Boston-based company in 2017, didn’t seem to see any of this coming when he announced plans to sell GE Transportation in November.
“We foresee a protracted slowdown,” Flannery said of the transportation business at the time. “We think it’s going to be an extended slow period in North America.”
Traders on Wall Street appeared to approve of the May 21 announcement.
Shares of General Electric Co. closed up more than 1.9% May 21. Meanwhile, shares of Wabtec rose 3.53%.
Not everyone shares that confidence, however.
Jim Young, of Erie, a 62-year assembler and welder who has worked in Building 5 at GE Transportation for 13 years, is worried about how all of this might end.
“I think it’s going to be a bad thing for the union,” he said. “After the first of the year, [I think] Wabtec will come in and bust the union. We are pretty sure they are going to change a lot of stuff.”
Young, who worked for 28 years at Riley Stoker, said he enjoys his work and would like to work for a couple of more years. But he said he’s worried that by waiting he could risk losing his current level of pay and benefits.
“They have been trying to bust the union since [CEO Lorenzo] Simonelli was here,” Young said. “We make too much money, which is why they opened Texas. We make a good product, but they want it for half the money.”
Young said he hoped to have some of his questions addressed May 22 at an all-employees meeting hosted by GE Transportation CEO Rafael Santana.
Santana, who moved into that role in 2017, acknowledged in a letter sent to employees May 21 that a lot of details needed to be addressed.
But Santana, who will lead the freight segment of the business, based in Chicago, promised in his letter to employees that good things are ahead.
“When I joined GE Transportation late last year, I did so because I firmly believed this was a fundamentally strong business with huge growth potential. I believe that even more so today,” he wrote.