Toshiba Near $5B Westinghouse Deal

Toshiba Corp. is set to buy Westinghouse, the U.S. power plant arm of British Nuclear Fuels, for almost $5 billion, a source familiar with the situation said on Monday, a higher-than-expected price in a move that will expand its overseas operations.

Final Offers for Westinghouse were made on Saturday night, and Toshiba outbid rivals that included General Electric Co. (GE) of the United States and Japan's Mitsubishi Heavy Industries Ltd., the source said.

Neither government-owned British Nuclear Fuels, whose board will meet on Thursday to formally approve the sale, nor Toshiba would confirm the report.

"No final bid has been selected yet," said a spokesman for British Nuclear Fuels. "That process will take place at a board meeting this week. Until that happens, that is the position of the company."

Takeo Miyamoto, an analyst at CLSA Asia-Pacific Markets, said the possible deal would be a step in the right direction for Toshiba, though he had yet to look at whether the reported price was in an appropriate range.

"Traditionally, the Japanese nuclear power business has depended heavily on the domestic market, which is barely growing. Seeking expansion into China and other overseas markets should be a sound strategy," Miyamoto said.

"Nuclear power generation is said to be vital to support power demand in such fast-growing countries as India and China. The deal would help heighten Toshiba's chance to win contracts in those nations."

Not only was Toshiba's bid of nearly $5 billion the highest offer but it was also seen as the best for Westinghouse's future growth prospects and its workers, the source said.

The price was much higher than expected. Initial expectations were for the business to fetch about 1 billion pounds ($1.78 billion), and the Wall Street Journal said on Friday that the eventual sale price could top $3.5 billion.

"An acquisition of Westinghouse would benefit Toshiba ... but the reported $5 billion price tag was a surprise," an analyst at a Japanese brokerage said.

"Toshiba is burdened with heavy capital investment programs for microchips and thin TV panels. I bet they wouldn't be able to pay that on their own," he said.

The price being offered for Westinghouse, based in Pittsburgh and a top supplier of nuclear plant technologies, is more than 10 times Toshiba's group net profit estimate for the year ending March 31.

As Japan's second-largest electronics conglomerate, Toshiba offers a wide range of products from nuclear reactors to hot-selling NAND-type flash memory chips, and is planning to launch new flat-panel TVs using advanced panels called surface conduction electron emitter displays (SEDs) this year.

Shares in Toshiba closed down 4.7 percent at 731 yen, while the electrical machinery index lost 3 percent.

Japanese firms retrenched after an asset bubble popped in the early 1990s, but as the economy showed signs of recovery they cautiously began expanding abroad again.

Acquisitions of foreign assets by Japanese firms rose 16.4 percent year-on-year in 2005, the highest on record since 1990, according to research by investment bank Nomura.