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Toshiba shuffling, not throwing in hand, in potential Westinghouse deal

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By Thomas Olson
Saturday, Jan. 5, 2013
 

Toshiba Corp. is not shopping a 36 percent stake in Westinghouse Electric Co. because of doubts about its nuclear prospects, but because the Japanese parent needs cash, most experts believe.

With fewer consumers buying its computers, TVs and washing machines, Toshiba is talking with three potential buyers of a 20 percent stake of Cranberry-based Westinghouse and three others interested in acquiring a 16 percent share.

Toshiba never generated enough profit from the business to justify the $5.4 billion it paid for Westinghouse, the experts said.

“They have a lot of capital invested in the business, and they don't generate enough cash flow to pay for what they have invested,” said Craig Sterling, managing director and head of global equity research for Eva Dimensions LLC in Locust Valley, N.Y.

Westinghouse employs about 6,000 people in Western Pennsylvania among 14,000 overall. Westinghouse is building four nuclear reactors in the United States and four in China and is working to expand its business with technologies such as small nuclear reactors.

“We do not anticipate any impact to the normal daily operations of Westinghouse Electric Company here in Pittsburgh or elsewhere due to Toshiba selling a minority stake,” Westinghouse spokesman Scott Shaw said.

Toshiba intends to retain at least 51 percent ownership, spokeswoman Naomi Furuya said.

When it acquired the company from British Nuclear Fuels plc in 2006, Toshiba intended to own 51 percent. But other buyers in a consortium did not pan out, and Toshiba wound up with 77 percent.

The deal gave Toshiba, Japan's largest maker of nuclear power-plant equipment, access to prevailing reactor technologies: Westinghouse's pressurized water reactors and boiling water reactors Toshiba licensed from General Electric Co.

“There is a long-term future for nuclear power, and I don't see anything in Toshiba's actions that contradicts that,” said James Bodner, co-president of The Cohen Group, a Washington-based consulting firm.

“Toshiba is not moving away from nuclear but rebalancing of their portfolio of businesses,” said Bodner. “Nuclear still appears to be part of their long-term thinking.”

Toshiba slashed its estimate of annual operating income in late October by more than 13 percent.

Westinghouse fits in the largest of Toshiba's five business segments, which includes nuclear and thermal power, elevators and medical systems. The segment posted higher sales and operating income in the half-year ended Sept. 30. Each of the other consumer product segments reported declines, according to Toshiba's website.

Carol Werner, executive director of the Environmental and Energy Study Institute, an education and science policy group in Washington, said Japan's Fukushima-Daiichi nuclear power plant disaster in March 2011 — and nuclear retreat by such markets as Germany — along with competition from cheap and abundant natural gas blunted nuclear energy's prospects.

“It appears this may be influencing Toshiba's action with regard to their investment in Westinghouse,” she said. “I don't think we've seen ‘the nuclear renaissance' realized.”

Toshiba expected to own 87 percent of Westinghouse as of Friday, after Shaw Group Inc. exercises an option to sell its 20 percent interest in Westinghouse to Toshiba. Shaw and Toshiba could not be reached to determine whether they completed the transaction.

President Norio Sasaki has said one potential buyer for 20 percent of Westinghouse is Chicago Bridge & Iron Co., NV, an energy infrastructure engineering and construction company that is acquiring the Shaw Group. It is expected to complete that deal this month. CB&I officials were not available for comment.

Makoto Kikuchi, CEO of hedge fund advisory firm Myojo Asset Management Japan Co. of Tokyo, said Toshiba can make use of cash from a sale while continuing to “do what it wants to do with Westinghouse” because it will maintain control with a majority stake.

Sasaki said most offers for the 20 percent stake came from U.S. companies, and the smaller interest in Westinghouse drew potential buyers worldwide.

Toshiba's sales fell 8 percent in the first half of its fiscal year. The company blamed lower demand for liquid crystal display (LCD) TVs in Japan and personal computers in the United States, along with other factors.

Trib Total Media staff writer Kim Leonard contributed. Thomas Olson is a staff writer for Trib Total Media. He can be reached a 412-320-7854 or at tolson@tribweb.com.

 

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