Greenbriar, Berkshire take the train

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Greenbriar, Berkshire take the train

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Greenbriar, Berkshire take the train

by Lisa Gewirtz
Updated 10:33 AM EST, Jan-13-2005

After protracted negotiations with unions and financial buyers that lasted more than a year, General Motors Corp. has finally struck a deal to sell its Electro-Motive locomotive unit to Greenbriar Equity Group LLC and Berkshire Partners LLC.

The price of the deal was not disclosed, but Reuters pegged the deal at less than $500 million.

"A purchase agreement was signed late last night," said Reginald Jones III, a managing partner of Rye, N.Y.-based private equity firm Greenbriar, adding that the sale is expected to be finalized in the first quarter of 2005.

Electro-Motive employs about 3,000 people and operates two facilities in LaGrange, Ill., and London, Ontario. Both factories are unionized, and a contract with the United Auto Workers still needs to be ratified, said Greenbriar CFO Kathleen Moran.

The locomotive unit, founded in 1922, is the world's largest manufacturer of diesel-electric engines. It has a 40% market share and a strong franchise," Moran said.

Nevertheless, Electro-Motive has struggled against competitors, like General Electric Co.'s locomotive unit, which has taken a large share of the U.S. market in recent decades.

Greenbriar and Berkshire, which have a formal partnership to pursue investments in the transportation sector, have been negotiating with GM for more than a year. The sale is part of a larger divestiture program by GM.

Greenbriar was founded by Gerald Greenwald, formerly chairman and CEO of UAL Corp., and vice chairman and CFO of Chrysler Corp. The private equity firm focuses exclusively on the transportation sector, which is heavily unionized. This plays to Greenwald's strength. During his tenure at Chrysler and UAL, he had considerable contact with union representatives and developed what Moran calls "long-standing business relationships with the unions."

Those relationships paid off here. Greenwald, for example, spent the past 18 months negotiating with Buzz Hargrove, president of the Canadian Auto Workers Union, which represents the Ontario plant. Hargrove, who worked with Greenwald in the 1970s and '80s at Chrysler, rejected a bid from Caterpillar Inc. and favored Greenbriar's bid instead.

"[Greenwald] has integrity, intelligence and energy. He works every day, seven days a week. He is someone you can sit down with when you have a problem," Hargrove said in a statement. These are glowing words, considering that the two men stood on opposite sides of the picket line in a five-week strike in 1982.

Berkshire has invested before in railroads, including U.K. freight hauler English Welsh & Scottish Railway Holdings Ltd., Australian Transport Network Ltd., New Zealand's Tranz Rail Holdings Ltd. and regional U.S. railway Wisconsin Central Transportation Corp.

Locomotive sales are highly cyclical. The Electro-Motive unit sold twice as many locomotives in 2004 as it did in 2003, according to a GM spokesman, who said the unit produces on average about 500 to 600 locomotives per year.

The sale price is immaterial to GM's earnings and therefore was not disclosed.

http://www.thedeal.com/NASApp/cs/Conten ... p=M4YD5AR2

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