Toshiba to buy 77% equity in Westinghouse for $4.2 billion
Japan’s Toshiba Corp said on Wednesday it would take a 77% stake in Westinghouse, British Nuclear Fuels’ US power plant unit, for $4.16 billion, buying a much bigger chunk of the firm than it initially planned.
Toshiba in February agreed to buy Westinghouse for $5.4 billion as part of a consortium, in which it wanted to take a stake of 51% or just a little more, but Toshiba’s stake grew after it failed to get Japanese trading firm Marubeni Corp to invest.
The Tokyo-based company said on Wednesday that US engineering firm Shaw Group Inc will take a 20% stake for $1.08 billion, while Ishikawajima-Harima Heavy Industries Co Ltd is set to take the remaining 3%.
“The Westinghouse acquisition is an attractive business with much promise, and we considered it, but decided against investing,” a Marubeni spokesman said. Toshiba will turn to bank borrowings for the deal, slated to close by the end of the month, and has no plans for equity financing, Toshiba spokesman Keisuke Ohmori said.
Toshiba’s stake in Westinghouse could become smaller than 77% in the future as it is still negotiating with a few companies for a minority stake in the firm, he said. But even so, it’s hard to imagine another investor taking much more than a 3 or 4% stake, said JP Morgan Securities Japan’s analyst Yoshiharu Izumi.
“In the short-term, this will be a negative for Toshiba shares, but the additional cost is small for Toshiba over the longer term,” he said. The purchase makes Toshiba the world’s largest nuclear reactor maker in terms of power-generating capacity, and it expects to recover the investment within 15 to 20 years on increased orders from the US and China for pressurised water reactors amd boiling water reactors.
“Toshiba’s cash flow this year is in good shape, thanks to robust business in NAND flash memory chips,” said Tatsuya Mizuno, director at credit ratings firm Fitch Ratings. “But what happens in the next few years, if NAND prices fall faster than Toshiba thinks?” Nor is it clear Toshiba will be able to get the orders necessary to recover such a big investment, he said. “Westinghouse’s expertise in the US has been in maintenance of nuclear power plants, not construction of new ones. And if interest rates go up, that could be a significant burden on Toshiba’s balance sheet,” Mizuno said.
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