Toshiba Falls on Report Company May Buy Shaw Group’s Stake in Westinghouse

Toshiba, which already owns 77 percent of Westinghouse, is in talks to buy out Shaw Group’s 20 percent holding in the Pittsburgh-based company, the Journal reported, citing people it didn’t identify.

Toshiba Corp. (6502), Japan’s biggest maker of nuclear reactors, fell to the lowest in more than two years in Tokyo trading after the Wall Street Journal said the company may buy Shaw Group Inc. (SHAW)’s stake in Westinghouse Electric Co.

The shares slumped 5.1 percent to close at 297 yen, the lowest since April 2, 2009. The Nikkei 225 (NKY) Stock Average declined 2.2 percent.

Toshiba, the majority stakeholder of Westinghouse, is in talks to buy out Shaw Group’s 20 percent holding in the Pittsburgh-based company, the Journal reported, citing people it didn’t identify. Talks are still under way and a deal may be announced as early as today, according to the newspaper. Keisuke Ohmori, a Toshiba spokesman, declined to comment on the report.

“Assuming the news is true, the market is estimating that Toshiba may need to raise about 80 billion yen ($1.05 billion) worth of funds for the buyout,” Ikuo Matsuhashi, a managing director in Goldman Sachs Group Inc., wrote in a Japanese- language note today. “People might interpret this as Shaw Group exercising a put option because they’re downgrading their mid- term outlook for nuclear power business.”

Toshiba acquired a 77 percent stake in Westinghouse for $4.16 billion in October 2006. Shaw Group, a Baton Rouge, Louisiana-based engineering and construction business, paid $1.08 billion for its share, raising the money though a private placement. Japan’s IHI Corp. bought the remaining 3 percent.

Toshiba’s Stake

Kazatomprom, Kazakhstan’s state nuclear company, bought a 10 percent share in Westinghouse from Toshiba a year later, reducing the Japanese company’s holding to 67 percent.

IHI is currently not in discussions with Toshiba on its Westinghouse holding, Keiichi Sakamoto, a spokesman at the Tokyo-based heavy machinery maker, said by telephone. IHI was formerly known as Ishikawajima-Harima Industries Co.

Shaw Group’s stake in Westinghouse is held by its Nuclear Energy Holdings unit, which partly financed the investment by issuing limited recourse yen-denominated bonds, according to a description in the company’s June 28 earnings statement.

To mitigate the currency risk, the unit “simultaneously entered into a yen-denominated put option agreement with Toshiba, which provides NEH the option to sell all or part of its equity interest to Toshiba and receive a predetermined yen-denominated price for the shares,” Shaw Group said, without giving the price.

Shaw Group, which posted a $70 million loss in the three months ended May, including contributions from Westinghouse, said its earnings often reflect swings in the dollar’s value against the yen.

Global Nuclear Review

Toshiba has slumped 41 percent since the record earthquake and tsunami that struck Japan on March 11 wrecked Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The company helped build four of the six reactors at the site. Shaw Group has declined 44 percent in New York trading in the same period.

The worst atomic accident since Chernobyl in the former Soviet Union in 1986 has prompted a worldwide safety review of existing and planned nuclear power plants, with countries from China to Germany either delaying or scaling back programs.

China, building more reactors than any other nation, suspended approval of new plants after the disaster and said it will accelerate the development of renewable sources such as solar and wind energy. Germany last month decided against re- starting eight reactors to counter possible power shortages in Europe’s biggest economy this winter.

‘Outlook Grim’

“The outlook for the nuclear power business looks grim,” Hiroyasu Nishikawa, an analyst at Cosmo Securities Co. in Tokyo, said today by telephone. “In the U.S. and Europe, plans to build nuclear plants will likely remain in the doldrums for a while,” because of safety concerns.

Shaw may hold a similar view on the future of nuclear power, which could prompt it to sell its stake in Westinghouse, Nishikawa said.

Toshiba is counting on a backlog of orders from China, while hedging its bet on nuclear power with moves into other energy businesses, including solar power and smart-grid equipment for electricity networks. China has approved 34 reactors, of which 26 are under construction, according to the World Nuclear Association.

On May 10, Toshiba signed a preliminary deal with Charlotte, North Carolina-based power-plant equipment maker Babcock & Wilcox Co. (BWC) to develop thermal and solar technologies. Nine days later it announced a $2.3 billion deal to buy Landis&Gyr AG, a Swiss electronic-metering company.

Toshiba said in a presentation to investors in May that it plans to win 39 reactor orders, generating 1 trillion yen in revenue from it nuclear business in the year ending March 2016, while warning about possible delays in approval of new construction projects. The company cited existing projects in China and the U.S. and demand from developing countries such as Turkey and Vietnam. 

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