Friday, October 2, 2009

Expensive acquisition by Wabtec (WAB)

I always praise companies when they spend money wisely....not so sure that Westinghouse Air & Brake (WAB) did so this morning.

They announced that they've bought Ontario-based Unifin for $93million. Of utmost importance to me is that when management spends shareholder dollars they spend it judiciously (is that proper grammar?).

Wabtec calls themselves "one of the world’s largest providers of value-added, technology-based products and services for the global rail industry." The company's two reportable segments are the Freight Group and the Transit Group:

-->>Freight Group manufactures products and provides services geared primarily to the production and operation of freight cars and locomotives, including braking control equipment, on-board electronic components and train coupler equipment.

-->>Transit Group consists of products for passenger transit vehicles and locomotives (typically subways, commuter rail and buses) that include braking, coupling, monitoring systems, climate control and door equipment engineered to meet individual customer specifications, as well as commuter rail locomotives.

This acquisition will complement the company's Young Touchstone subsidiary. Fair enough, but the price paid is a little rich.

I've owned shares of Wabtec on and off over the years and have known them to be excellent operators, but this deal is worrisome. Per the press release, Unifin has about 100 employees, so they're paying almost $1million per employee versus Wabtec's market value of about $240,000 per employee. They're paying over two times sales for Unifin, while their own valuation is 1.15 times sales.

This is quite a premium to be paying in the midst of a recession. I have a call in to Wabtec, and will share any details that come from it.

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