Toshiba mulls sale of controlling stake in Westinghouse unit

Business Tuesday 14/March/2017 12:59 PM
By: Times News Service
Toshiba mulls sale of controlling stake in Westinghouse unit

Tokyo: Toshiba is considering the sale of a majority stake in its Westinghouse nuclear unit as the company grapples with construction delays and a multibillion dollar write-down in the business. Shares reversed an earlier decline.
The Tokyo-based company is reevaluating Westinghouse’s position within the group and it may deconsolidate the nuclear unit by selling a controlling equity stake. Toshiba made the announcement as it gained approval to delay the release of third-quarter earnings until April 11. Shares reversed losses of as much as 8.8 per cent and gained 0.5 per cent at the close in Tokyo.
Westinghouse has been at the center of Toshiba’s most recent problems amid cost overruns on nuclear projects and related litigation. While the company was due to report final figures on Tuesday, it said it needed more time to examine reports of "inappropriate pressure” internally to push through the acquisition of a US construction firm specialising in building atomic plants. Toshiba has estimated it will need to take a writedown of 712.5 billion yen ($6.2 billion) but it hasn’t been able to get its auditors to sign off on the earnings results.
"The shares are up because the company has come out and shown its willingness to make strategic decisions about Westinghouse,” said Hideki Yasuda, an analyst at Ace Research Institute. "The uncertainty over the extent of losses in the nuclear business has been the number one source of worry. Sloughing it off would bring stability and a higher valuation for Toshiba.”
Toshiba said on Tuesday its planning to sell about 160 billion yen of assets in the 2016 fiscal year. It also plans to cut the number of board members and have a majority of directors from outside the company. President Satoshi Tsunakawa is scheduled to hold a press conference at 4pm in Tokyo on Tuesday.
Westinghouse appears to be already assembling a team of lawyers and advisers to help with the restructuring. The company has hired PJT Partners Inc., people with knowledge of the matter have said. Lisa Donahue of AP Services, LLC, an affiliate of AlixPartners, will lead the Pittsburgh-based company’s operational restructuring efforts, according to a spokeswoman at Westinghouse. It also brought in bankruptcy attorneys from Weil Gotshal & Manges LLP, Reuters reported earlier.
f Toshiba does part ways with its US nuclear unit, the likely buyer may be a regional neighbour with global ambitions. Westinghouse would be a strategic fit in China or South Korea, which are developing their own reactors for export, according to analysts and academics. The region is also home to about half the world’s nuclear units under construction, while China is forecast to have the largest fleet of reactors by the middle of next decade.
A sale of Westinghouse to state-run Chinese companies might run into national security concerns or political challenges in the US and Japan, according to George Borovas, the global head of the nuclear group at Shearman & Sterling LLP, a New York-based multinational law firm. That could leave South Korea as an easier fit. Korea Electric Power Corp. would consider a purchase if it receives a proposal from Toshiba, a company spokesman said.
The uncertainty over the valuation of Westinghouse has held up auditor’s approval for Toshiba’s third-quarter earnings. Toshiba has until April 11 get auditors to sign off on its books, but it can request another extension.
The TSE kept Toshiba on its list of securities on alert in a December announcement, after originally being included for overstating profits from 2008 through 2014. The company is due to file a report detailing plans to improve internal controls to the bourse on March 15. If deemed insufficient, the company will face delisting.
To raise cash and patch its balance sheet, Toshiba has already said it will sell a significant stake in its flash memory operations. The company has sent letters soliciting offers for the chip business, seeking bids that value it at about 1.5 trillion yen, and expects replies by the end of the month, people familiar with the matter have said.
The Japanese conglomerate would be willing to sell the entire business. Potential bidders that have expressed interest in the the chip unit include Korea’s SK Hynix, Taiwan’s Foxconn Technology Group, Western Digital and Micron Technology, the people said. Among the financial bidders are Bain Capital, Silver Lake Partners and KKR, the people said.
"The shares will be largely moved by two things, whether the company can limit losses in the nuclear business and the prospects for delisting,” said Kazunori Ito, an analyst at Morningstar Investment Services. "For many institutional investors, Toshiba’s stock has become untouchable.”