General Electric Co is closing in on a deal that would merge its transportation division, which makes train engines with U.S rail industry equipment makers Wabtec, said a pair of people with knowledge of the situation.
A deal that values the combined entity at over $20 billion could be announced early this week, said sources, asking to remain unidentified due to the negotiations being confidential.
If the deal comes to fruition it would be the largest thus far signed by John Flannery the CEO at GE. He took the reins of the U.S. conglomerate in August of 2017 with a mandate of slashing costs and increasing the industrial conglomerates plunging stock price.
There remains a possibility that the talks over the deal, which are focused on using a structure that is tax efficient known as Reserve Morris Trust, could fall apart sources cautioned.
GE’s Flannery told shareholders at their annual meeting in April that the company was aware of pain that its poor performance and its cut in dividend caused in 2017.
Executives are attempting to turn the ailing oil and gas and power divisions around he told the shareholders, adding that evidence existed of improvement.
Several actions have been taken by GE to cut back on it portfolio over the last few years, as its cuts plastics, NBCUniversal, as well as the majority of its GE Capital business.
GE has combined its business of oilfield services with that of Baker Hughes.
The company’s transportation business, which last year had $4.7 billion in revenue, manufactures passenger and freight trains, mining equipment and marine diesel engines, amongst others.
Wabtec, which has a $9.2 billion market capitalization, makes equipment for freight cars, locomotives and passengers transit vehicles.
After a shakeup of the board of directors, Flannery pledged to slash costs of $2 billion for 2018 and cut the dividend by 50%.
Share price of GE stock lost close to half if overall value over the last 12 months, and the conglomerate has worked with Trian Fund Management an activist shareholder and member of the board to turn business around.
The Reverse Morris Trust allows a business to avoid large tax bills through spinning off any unit that it has a desire to divests while simultaneously merging the same unit with a separate company.
Neither GE nor Wabtec responded to requests that were left for comments.