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.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Westinghouse Air Brake Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.