Toshiba looking to sell partial stake in Westinghouse
Toshiba President Norio Sasaki
A model of the AP1000 nuclear reactor made by Westinghouse, whose operations expanded under Toshiba to include the reactor.
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A host of factors -- from computer chips to shale gas -- look to be leading to the biggest shake-up in Westinghouse Electric Co. ownership since the nuclear energy firm was purchased by Toshiba Corp. in 2006.
The Tokyo company is looking to shed potentially up to 36 percent of its majority stake in Westinghouse, a move that would deliver billions to a cash-strapped Toshiba.
It's hard to say what effect a sale might have on Westinghouse's Cranberry headquarters, especially since Toshiba would still own at least 51 percent of Westinghouse. But the offering is the latest bit of potential tumult for the company, which has weathered -- along with its entire industry -- a global slowdown in nuclear development following the March 2011 meltdown at General Electric plants in Fukushima, Japan.
The Fukushima disaster, triggered by an earthquake and tsunami, led energy experts to cut back projections for the nuclear industry, especially as alternatives like cheap natural gas grew more popular. That setback came at a poor time for Toshiba, which had seen steady revenue increases in its nuclear division but faced significant sales declines in its computer-oriented sectors.
The company has been a majority owner of Westinghouse since buying 77 percent of it from British Nuclear Fuels PLC for $4.16 billion about six years ago. Since then, Westinghouse operations have expanded to include major models like the flagship AP1000 nuclear reactor while also beginning development on smaller reactors that officials say could power entire towns.
"We don't expect [the sale] to have any impact on Westinghouse" or its U.S. operations, said Westinghouse spokeswoman Sheila Holt. The company has been expecting such a sale since Toshiba acquired an additional 20 percent stake from the Baton Rouge-based Shaw Group earlier this month -- an addition that put its ownership at 87 percent.
At least three parties have expressed interest in purchasing a stake in Westinghouse, Toshiba President Norio Sasaki told Dow Jones Newswires last month. Toshiba has not said how it might divide its stake among one or more buyers. A Netherlands-based energy infrastructure firm called the Chicago Bridge & Iron Co., which recently acquired the Shaw Group, has been identified as one potential buyer. The others have not been identified.
Toshiba could raise $2 billion by selling a 36 percent stake in Westinghouse, according to Damian Thong, an analyst at Macquarie Capital Securities in Japan.
Since the acquisition about six years ago, Toshiba has been influential at the Cranberry firm. Three out of eight of Westinghouse's board of directors are current or former Toshiba employees, and Toshiba has a company coordination officer stationed at the Cranberry campus.
When Westinghouse CEO Jim Ferland unexpectedly stepped down last April, Westinghouse board chairman and Toshiba senior vice president Shigenori Shiga flew to Pittsburgh from Japan to take over as an interim CEO for nearly six months.
Westinghouse's time under Toshiba has also been good for the Cranberry company's bottom line. Westinghouse annual revenue grew by $1 billion every year for the first three years after the purchase. Its revenue in 2010 was up $500 million to $4.7 billion, and in 2011 increased by the same amount to $5.2 billion.
Money raised by the sale could help fill some recent gaps in other parts of Toshiba's balance sheet.
Toshiba saw net sales fall in its most recent quarter, with a drop in its digital product and electronic devices divisions leading a year-over-year sales drop of 226 billion yen, or 7.8 percent. That came despite good performances by other divisions, which include thermal power systems, elevators and medical products, in addition to nuclear energy.
In his recent analyst report -- titled "Whither thou goest, Westinghouse?" -- Mr. Thong says potential stake-buyers could be engineering firms who want to work on building AP1000s, the flagship reactor that has become the company's top product and priority.
Toshiba is looking for buyers who would help expand nuclear development in markets that include the United Kingdom, United States and China, according to statements by company officials. Westinghouse already has several reactors under way in China and the southern United States, with pending contracts throughout Europe and other parts of the world. The first AP1000s are expected to come online in China in 2014.
Many of those projects were under way before the Fukushima meltdown led some governments to re-evaluate plans for nuclear development. Energy analysts have tempered forecasts for nuclear development over the next several decades following the Japanese meltdown.
Three years ago, the International Energy Agency projected more than 300 gigawatts of nuclear-power capacity being added between 2010 and 2030. Now, the IEA predicts about 210 gigawatts will be added before 2035.
Changes in policy are not the only factors contributing to a downturn in nuclear energy. Cheap natural gas -- which is being extracted from formations like the Marcellus Shale that underlies much of Pennsylvania -- has been eyed as a potential game-changer in global energy dynamics, according to the World Energy Outlook published in November by the IEA.
"Japan and France have recently joined the countries with intentions to reduce their use of nuclear power, while its competitiveness in the United States and Canada is being challenged by relatively cheap natural gas," the report found.
First Published January 11, 2013 12:14 am