GATX May Buy GE's Rail-Service Unit for as Much as $3.5 Billion

By Rachel Layne and Joyce Moullakis

Aug. 9 (Bloomberg) -- GATX Corp., the Chicago-based lessor of freight cars, is offering more than $3 billion for General Electric Co.'s Rail Services unit, people familiar with the discussions said.

GATX is the leading bidder for the unit, which has a book value of about $2.8 billion, the people said. The terms are still being negotiated, said the people, who asked not to be identified because the discussions are private. One said the offer may be as much as $3.5 billion.


Chief Executive Officer Brian Kenney is building GATX's rail business after selling an aircraft-leasing division in 2006. At GE, whose stock has slumped 20 percent this year, CEO Jeffrey Immelt is seeking to shed as much as $100 billion in slower- growing finance assets such as the rail leasing division. During a July 24 teleconference, GATX's Kenney said he's seeking to ``invest more aggressively'' during a financial slowdown.

``That's certainly what we prepared the company for over the last couple of years,'' said Kenney, 48, according to a transcript of the July call.

Rhonda Johnson, a spokeswoman for GATX, couldn't be reached for comment. Russell Wilkerson, a GE spokesman, declined to comment.

Fairfield, Connecticut-based GE is the world's biggest maker of jet engines, locomotives, medical imaging machines and power- generation equipment. GE's Web site says the rail division leases about 165,000 railcars and 120,000 trailers, containers and chassis to rail lines and shippers. The unit is based in Chicago and has offices in Canada, the U.S. and Mexico.

GE rose $1.07 to $29.64 yesterday in New York Stock Exchange composite trading. GATX climbed $2.26 to $46.45, and its shares have risen 27 percent this year.

GE Strategy

Immelt, 52, became CEO in 2001 and has since sold slower- growing and capital-intensive businesses such as insurance and plastics for more than $55 billion. At the same time he has made more than $80 billion in acquisitions in health care, water treatment and power-generation equipment.

GE shares fell the most since October 1987 on April 11, when Immelt announced an surprise decline in first-quarter earnings, blaming turmoil in credit markets. The credit crunch also has prompted several financial companies to seek to offload their rail units to shore up capital and re-focus on their main businesses.

The U.K.'s Royal Bank of Scotland Group Plc agreed to sell its train-leasing unit to Babcock & Brown Ltd. and partners in June for 3.6 billion pounds ($6.91 billion). The Babcock-led group wanted to benefit from rising rail travel in the U.K.

CIT Group Inc., the commercial lender that tapped emergency credit lines this year when cash ran short, is also assessing offers for its rail-leasing division. The company received multiple bids, including at least one from outside the U.S., according to Chief Financial Officer Joseph Leone. CIT Group hired advisers in April to assess options for the unit, which has assets of about $4 billion.

To contact the reporters on this story: Joyce Moullakis in London at jmoullakis@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net.