The deal, first reported on Sunday, is the biggest to be inked thus far by GE chief executive John Flannery since he announced a major overhaul of the US industrial conglomerate late last year.
The transaction values the GE transportation business, which makes train engines, at $11.1bn. GE will receive a $2.9bn up-front payment in cash and a 9.9percent stake in the combined company, with GE shareholders awarded 40.2percent and existing Wabtec shareholders owning 49.9percent.
GE shares rose 2.8percent to $15.39. Wabtec shares rose 4.3percent to $99.28.
The deal is tax-free for GE and Wabtec shareholders, because it is structured as a so-called Reverse Morris Trust, with GE spinning off the transportation unit and simultaneously merging it with Wabtec.
The $11.1bn deal value includes a $1.1bn net tax benefit accruing to the combined company, GE and Wabtec said.
The equity value of the company combining Wabtec and GE’s transportation business will be more than $20bn.
The deal caps a review of the transportation division by GE dating back to last year after a string of setbacks for the 126-year-old company.
But this also follows years of on-and-off talks between Wabtec and the GE unit about combining, Wabtec chief executive Raymond Betler said.
“We’ve always been quite interested. There has been a relationship between (us) that goes back decades,” he said.
“For a whole host of reasons, the stars kind of lined up this time, and it presented an opportunity for us to actually get it done.”
Betler will remain president and chief executive of the merged company while its chairperson, Albert Neupaver, has been re-appointed executive chairperson.
GE transportation chief executive Rafael Santana will become president and chief executive of Wabtec’s freight segment.
The resulting company will have approximately $8bn in revenues, with 27000 employees across 50 countries, the companies said.
The transaction is expected to close in early 2019.
GE’s transportation business, which generated revenue of $3.9bn last year, is already larger than its sole close peer in the railroad engines business, Caterpillar, selling equipment and services to a global fleet of roughly 23000 locomotives, Santana said.
The deal will add more offerings that can improve efficiency and safety to GE’s customers, which include Komatsu and Rio Tinto, as well as Wabtec’s client base which includes Siemens and Bombardier, Santana added.
Wabtec, which has a market capitalisation of $9.2bn, manufactures equipment for locomotives, freight cars, and passenger transit vehicles.