Merger deal modified
General Electric (GE) stock gained over 4% last Friday after the company announced that the GE Transportation-Wabtec merger deal had been revised. The revised terms are anticipated to fetch more cash for the industrial conglomerate.
GE and Wabtec entered a spin-merger deal on May 21, 2019, wherein the former agreed to spin off its Transportation unit and merge with the latter. According to the old agreement, GE would have received $2.9 billion in cash and a 9.9% stake in the new entity. GE’s existing shareholders would have been entitled to a 40.2% stake in the combined company.
However, according to the revised agreement, GE will receive common stock and non-convertible preferred shares, which combined represent 24.9% economic interest in the combined company. At Wabtec’s current market prices, the 24.9% stake in the combined company is valued at $3.4 billion. Additionally, GE shareholders will directly own 24.3% in the combined company.
Further, the revised terms of the deal will make Wabtec the majority shareholder in the combined company with a stake of 50.8% compared with the earlier 49.9%. The industrial conglomerate expects the spin-merger transaction to close by the end of February 2019.
Investors are gaining confidence
The revised terms of the deal signify GE CEO Larry Culp’s continuous efforts to enhance the company’s liquidity position. Culp has undertaken a string of measures including divestments and spin-offs to strengthen the balance sheet in the last few months, which helped GE gain investor and analyst confidence.
In the month-to-date period, GE stock has gained 21%, significantly outpacing the returns of the SPDR S&P 500 ETF (SPY). SPY, which tracks the performance of stocks in the S&P 500, has gained 6.3% during the same timeframe.
The Industrial Select Sector SPDR Fund (XLI) has invested 3.4% of its funds in GE stock. The ETF also has 15.5% exposure to industrial conglomerates including 3M (MMM), Honeywell International (HON), and United Technologies (UTX). 3M, Honeywell, and United Technologies have weights of 5.5%, 5%, and 4.4%, respectively, in XLI.