Wabtec executive chairman Albert Neupaver told securities analysts that the rail products company’s offer to buy Faiveley Transport S.A. of France is as close as possible to being “a perfect, compelling, strategic rationale for an acquisition.”
Wilmerding-based Wabtec early Monday said it plans to buy Faiveley, which also makes rail components and systems, in a cash-and-stock deal valued at $1.8 billion, including assumed debt.
The combined company would have annual revenues of about $4.5 billion and be among the largest public railway equipment providers in the world with more than 100 manufacturing plants and 19,000 global employees.
Wabtec’s shares shot up more than 7 percent to close at $97.93, the biggest jump in price since August 2011. Trading in Faiveley was halted until Tuesday.
If approved, the deal would be the largest acquisition in Wabtec’s history. The company was formed in 1999 when Westinghouse Air Brake Co. merged with MotivePower Industries. In the past eight years, it has scooped up 30-plus businesses and grown to 13,000-plus employees and annual revenues of about $3.3 billion.
Faiveley, based near Paris, employs more than 5,700 worldwide and had sales of about $1.2 billion in its most recent fiscal year.
While both Wabtec and Faiveley produce brakes for freight and passenger transit trains, the purchase of Faiveley would add several strengths to Wabtec’s portfolio including energy efficient assemblies for transit cars, air conditioning systems and service installations and upgrades.
While talks about Wabtec buying Faiveley commenced a little over a year ago, the companies’ relationship goes back a decade when Faiveley bought a former Wabtec affiliate company, SAB Wabco, which makes railway braking equipment.
“This transaction recombines the original Wabco rail divisions” and creates a business with “complementary geographies, minimal overlap and diversified offerings,” Mr. Neupaver said in a conference call with analysts after the deal was announced Monday. It is “another logical step … to allow us to diversify.”
Just less than half of Wabtec’s sales, or 48 percent, come from outside the U.S. That would jump to nearly 60 percent in international revenues under the combined entity, providing it with a strong, diversified, global customer base and making it “a more efficient global competitor,” Mr. Neupaver said.
Specifically, Wabtec’s offer calls for it to buy 51 percent of Faiveley shares owned by the Faiveley family for 100 euros ($111) per share payable in 25 percent cash and 75 percent of Wabtec preferred stock. Those shareholders already have entered exclusive discussions with Wabtec.
After it buys those shares, Wabtec said it would begin a tender offer for the remaining common shares of Faiveley at the price of 100 euros per share or Wabtec preferred stock. The preferred stock option would be capped at 75 percent of common shares.
At 100 euros, the offer is 41 percent higher than Faiveley’s closing price of 71 euros last Friday.
Wabtec said it would fund the purchase with $250 million in cash on hand, $622 million in existing credit and possibly debt financing.
“The deal is not contingent on financing,” Mr. Neupaver told analysts.
He said he could not project when the sale could be finalized.
Terms of the deal call for him to remain as chairman and for Raymond Betler, Wabtec president and chief executive, to remain in his current role.
Stephane Rambaud-Measson, Faiveley’s chairman and chief executive, would become president and chief executive of Wabtec’s Faiveley Transport group and corporate executive vice president of Wabtec.
Faiveley’s headquarters in Gennevilliers would become Wabtec’s global transit base, using Faiveley Transport as a brand name.
Mr. Rambaud-Measson told analysts he believes the sale to Wabtec is “an excellent strategic move” that would allow Faiveley to double in size “and enable us to pursue our ambition to become a global leader in railway equipment and services for the passenger transit market.”
Despite the size of the proposed offer, Mr. Neupaver said Wabtec is not ruling out more acquisitions.
“By no means is this the end of growth opportunities for us. This is a $100 billion industry. … In our minds, this opens up more opportunities.”
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