Toshiba in Talks to Sell Part of Westinghouse Nuclear-Power Unit

From Wall Street Journal

By Mari Iwata

Toshiba Corp. 6502.TO +3.22% is negotiating with three parties to sell up to 16% of its Westinghouse Electric Co. nuclear-power unit, Toshiba President Norio Sasaki said.

The three parties “have made very good offers,” but Toshiba is “not in a hurry,” Mr. Sasaki said. The Japanese conglomerate’s forecast for its nuclear-reactor business is positive, despite softer demand after last year’s Fukushima disaster in Japan, he said.

Toshiba paid about $4.2 billion for 77% of U.S.-based Westinghouse six years ago. At that price, the 16% would be valued around $875 million. Toshiba has since sold 10% of Westinghouse to Kazakhstan state-owned NAC Kazatomprom JSC. Mr. Sasaki said Thursday that Toshiba would retain at least a 51% stake in Westinghouse.

Mr. Sasaki said the buyer would be a strategic partner that would be able to help Toshiba establish “a firmer footing” in target markets such as China, Finland, Brazil, India, the U.S. and the U.K.

Louisiana-based Shaw Group Inc. SHAW -0.24% bought 20% of Westinghouse when Toshiba bought its holding, while Japanese manufacturer IHI Corp. 7013.TO +0.90% bought the remaining 3%.

The Fukushima nuclear crisis, triggered by an earthquake and tsunami, prompted some countries to re-evaluate nuclear power. But Mr. Sasaki said only countries that already were reluctant to expand nuclear power have left the market. Countries that planned to expand their nuclear-power capacity haven’t changed course, he said.

“It’s just that the demand will materialize two to three years later” than previously anticipated, he said. Countries are attempting to make changes required by regulators in response to the Fukushima accident, which was the worst in more than two decades.

Before the accident, demand for nuclear-power plants was increasing amid concerns about global warming and over rising prices for fossil fuels.

The International Energy Agency in 2010 forecast that more than 100 gigawatts of nuclear-power capacity would be added between 2010 and 2020 and that more than 200 gigawatts would be added in the following decade. The advisory body since has trimmed its forecast twice, with its latest report predicting growth of around 210 gigawatts between now and 2035.

Negotiations over the Westinghouse stake come amid a downturn in Toshiba’s business for flash memory chips. The company in June cut production of the chips for the first time in three years to cope with excessive inventories and weaker-than-expected demand.

Although Toshiba posted net of ¥37.3 billion ($436 million) in the quarter through September, nearly double the ¥19.87 billion recorded a year earlier, sales for Toshiba’s digital products and electronics devices fell 11%.

Merrill Lynch Japan Securities analyst Mikio Hirakawa said Westinghouse is an important operation for the Japanese company because it produces pressurized-water reactors, which are more widely used than the boiling-water reactors that most Japanese manufacturers sell. Before the Westinghouse purchase, Toshiba produced only boiling-water reactors, which were used at the Fukushima Daiichi plant and are used almost exclusively in Japan and the U.S.

“Demand for nuclear-power plants has contracted, partially because of Fukushima and partially because of cheap natural-gas supply from shale in North America,” Mr. Hirakawa said. Gas production has boomed in the past few years thanks to the use of new technologies to extract resources trapped in rock formations. This effect has been particularly pronounced in the U.S., where power producers have been building generators to take advantage of the glut of inexpensive gas.

But Toshiba’s Mr. Sasaki said the U.S. is a special case and that nuclear power has remained competitive in most of the rest of the world. North American natural gas has cost $2 to $3 per million British thermal units over the past year. But that “would rise to $9, if you add costs of liquefaction and transporting it to Asia, and nuclear power is cheaper than that,” he said.

While power producers will need to enhance safety in light of the Fukushima accident, that won’t significantly increase the cost of building a new nuclear-power plant, he said.

Separately, Shaw i SHAW -0.24% n October exercised an option to sell its 20% stake in Westinghouse to Toshiba. That purchase will close Jan. 4.

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