Toshiba powers up $5.4 billion deal

TOKYO – The head of Toshiba had good reason to sound a trifle defensive about his company’s $5.4 billion purchase of U.S. nuclear power company Westinghouse.

After all, almost every other high-profile Japanese buyout in the U.S. has turned out badly.

“I’d like to make this the first success story,” Toshiba Chief Executive Atsutoshi Nishida said following the announcement earlier this month that the electronics company will buy Westinghouse Electric Co. from British Nuclear Fuels PLC.

The move signals the determination of Toshiba, already a leading builder of nuclear power plants, to make nuclear energy one of its pillars along with computer chips and electronics. Toshiba has built 22 nuclear power plants in Japan since entering the business in 1966, and is building another one here and two in Taiwan.

By acquiring Westinghouse, Toshiba becomes the world’s No. 1 nuclear power company, with a 28 percent share of the global market, Nishida said.

With soaring oil prices, experts say nuclear energy is becoming a more attractive option in the U.S. and elsewhere, despite its safety concerns.

In particular, the company is betting China’s nuclear power market will balloon. Toshiba has not built a nuclear plant yet in China but runs operations in 63 locations there, including sales outlets, distribution centers and production plants, employing 20,000 people.

Still, there are numerous question marks about the deal.

For one, many believe Toshiba overpaid for Westinghouse. The expected price had been about half the final price. British Nuclear Fuels paid $1 billion when it bought the company in 1999.

“It was a far too expensive purchase,” said Kota Ezawa, analyst at Daiwa Institute of Research in Tokyo. “Nuclear energy is a profitable business, but even considering that, it wasn’t a good deal.”

Toshiba shares slipped on the deal, but have recovered on news that the company is boosting investments in flash-memory computer chips. Its stock is trading at about $5.60 lately.

Standard &Poor’s and Moody’s Investors Service placed Toshiba under review for a possible downgrade, warning that it had paid too much and that the deal may endanger its financial status.

Toshiba says it will recoup its investment in 15 or 20 years. It plans to maintain at least a 51 percent stake in Monroeville, Penn.-based Westinghouse, and is in talks with several companies for minority stakes.

Yuichi Ishida, analyst at Mizuho Investors Securities in Tokyo, believes it’s hard for investors to assess a deal that will take so long to produce profits, and questions the wisdom of channeling profits from its booming flash-memory chip business to nuclear energy.

“Toshiba is investing the money it has earned from a highly profitable business and investing it in nuclear power, which is far more questionable in profitability,” Ishida said.

Also, the deal could fail to win regulatory approval.

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