Toshiba Takes Westinghouse for $5.4B

Japan's Toshiba Corp. has agreed to buy Westinghouse, the U.S. power plant arm of British Nuclear Fuels, for $5.4 billion to bolster its position in the world's resurgent nuclear power industry.

Japan's second-biggest electronics maker said on Monday it expected several minority investors to join the deal but that it would retain a controlling stake of over 51 percent.

The takeover, which values Westinghouse at almost three times initial expectations, is expected to be completed in around six months.

Toshiba plans to fund it from cash flow, although Chief Executive and President Atsutoshi Nishida told reporters in London that it might also look to borrow funds.

The Japanese company expects its nuclear power business to triple in size by 2015 and expects to recoup its investment in Westinghouse in 15 to 20 years, it said.

Westinghouse builds and runs nuclear power plants worldwide and is a leader in the Chinese nuclear power market.

Nuclear power was out of favour after the Chernobyl disaster in 1986 and has been dogged by concerns about the financial and environmental costs of dealing with radioactive waste. But it has recently returned to the fore.

Concern over the security of power supplies and growing demand worldwide for energy have fuelled a surge in crude oil prices, prompting fuel-hungry countries such as China to expand investment in other energy sources including nuclear power.


"This is hugely significant for Toshiba's future growth. We are pretty confident that no other company will be able to match the breadth and depth of this combination," Nishida said.

Initial expectations were for Westinghouse to fetch about $1.8 billion, however Nishida said bidding interest in the final three weeks of negotiations pushed the price up from around $3.2 billion to $5.4 billion.

"There was a lot of competition in terms of bidding. Given the potential and future growth and profit, we believe this was the right price," he said.

Toshiba was selected last month as the preferred bidder following multiple rounds over the past several months. An initial 14 interested bidders narrowed to Toshiba, General Electric Co. (GE) of the United States and Japan's Mitsubishi Heavy Industries.

Nishida would not say whether Mitsubishi or General Electric had been invited to take minority shareholdings in the business.

The deal is expected to expand significantly the Japanese conglomerate's potential customer base. Toshiba offers boiling water reactors (BWRs), while Westinghouse specialises in the more widely used pressurised water reactors (PWRs).

"PWR represents about 60 percent of the global market, while BWR accounts for less than 30 percent," said Tomoko Murakami, a senior researcher at the Institute of Energy Economics, Japan.

"Moreover in China and the United States, where active construction of new reactors can be expected, PWR is set to remain the dominant technology."


Analysts said the Westinghouse acquisition might strain Toshiba's financial standing and cause the company, the world's fourth-largest chipmaker and third-largest notebook computer maker, to spread its resources too thin.

Nishida said Toshiba would rely on its annual cash flow of around 100 billion yen to pay for the deal, adding that the deal "may have some impact in financial 2006."

"Its cash flow is in good condition this business year, but it will be tough in the next business year even without the Westinghouse deal, because capital spending on semiconductors will increase," J.P. Morgan senior analyst Yoshiharu Izumi said.

Shares in Toshiba closed down 0.5 percent at 744 yen on Monday, underperforming the Tokyo stock market's electrical machinery index, which slid 0.28 percent.

State-owned British Nuclear Fuels, known as BNFL, which runs the Sellafield nuclear fuel reprocessing plant in northwest England, said in July it wanted to sell Pittsburgh-based Westinghouse.