The recent restructuring of the deal provides GE with more cash, but it also left GE as the minority owner of the combined entity. As a result, the merger is no longer structured as a Reverse Morris Trust and instead will be taxable to GE shareholders. Ultimately, GE agreed to unwind its ownership in the combined company (subject to certain limitations) over the next three years, but not in the 30 days immediately post close.
The date of record for the transaction is February 14th and GE shareholders as of that date will receive ~0.005403 shares of Wabtec for each GE common share owned. That means a shareholder with 10,000 GE shares will walk away with only 54 shares of WAB along with a little cash. Small shareholders will likely receive just cash in lieu of fractional shares and the odd exchange ratio could create orphaned positions and a period of forced selling.
Additionally, a when issued market is expected to begin trading on or about February 14th. This will offer shareholders a chance to sell their GE shares but retain their Wabtec interests or alternatively sell their Wabtec interest and retain their GE shares. The respective NYSE tickers will be ‘GE WI’ and ‘WAB WI’.
As of this writing, there have been no discussion of index changes related to this transaction. Wabtec is currently in the S&P Midcap 400 index, but it’s current pre-merger market cap is already above many S&P 500 constituents. I am certainly no expert in how index membership decisions are made, but it’s worth watching. We will keep you updated if there is a change.
Disclosure: Author holds no position in any stock mentioned.
I’M VERY CONFUSED..
How so?
I expect 25 shares of the Wabtec stock based on my shares of GE, but I don’t know when I will get them and how will they come to me. Are they held somewhere or will I get actual stock certificates mailed to me?
You should get the shares on the distribution date, February 25th. If you hold your shares in a brokerage account, the new shares will show up there. If you hold them directly, you should receive them that way. Hope this helps.
Thanks for the information. I couldn’t find it on the web.
The letter from GE HR to retirees in the RSP was not clear at all. There was no explanation as to why this was done. We were told we will retain the same number of GE share units, but that their value will change. We were advised to turn to websites for further information. Must they be reminded that we are retirees of a manufacturing company so most of us do not have the computer skills to educate ourselves further on this matter via the internet.
As a small GE stock owner (roughly 100 shares), I assume I will get cash in my brokerage account.
Any idea how much and when it will show up?
I answered your question in a new post
I failed. What is the tax basis for the WAB shares received by GE holders? Has anyone found a cite for that?
Patrick, I am not a tax expert and you should certainly ask one. I believe the answer is that the entire value of the distribution is taxed now, that that value becomes the tax basis of the Wabtec shares, and that your GE tax basis is reduced by that amount.
Can all this be explained in normal peoples language. I am totally confused. When will I have to pay taxes on the stocks. When I sell or before?
Normally a corporation will have documentation on their website with a basic formulas to calculate the subsequent tax basis. The GE’s website under the investors tab doesn’t have any mention of spinoff of the transportation business to WAB.