What's happening: Westinghouse Air Brake Technologies (NYSE:WAB), or Wabtec, announced on Monday morning that it plans to acquire Faiveley Transport in a $1.8 billion deal, including the assumption of debt. The acquisition sent Wabtec's shares up by more than 9% in early-morning trading.
Why it's happening: Wabtec is using a unique deal structure to acquire Faiveley, as it made a cash and preferred stock offer for 51% of the company. The first stage is payable in 25% cash and 75% preferred stock, which would pay an annual dividend of greater than 1%. Once that stage is complete, Wabtec will make a tender offer for the remaining shares offering both common and preferred stock. The company has set a rate that would cap the preferred stock portion of the tender offer to 75% of Faiveley's common shares. Furthermore, it intends to fund the cash portion of the deal with cash on hand, its credit facility, and potentially debt financing.
In acquiring Faiveley, Wabtec is acquiring a leading global provider of value-added, integrated systems and services for the railway industry. The European-based company had $1.2 billion in annual sales, which when combined with Wabtec will create one of the world's largest public rail equipment companies with total annual sales of more than $4.5 billion. As a result of the combination, Wabtec expects to realize 40 million euros in annual pre-tax synergies and it expects the deal to be accretive to earnings per share starting next year.