In announcing a $6.3 billion writedown on the value of Westinghouse Electric Co. this week, the CEO of the company's Japanese parent Toshiba said it was a misstep to get involved with the Cranberry-based nuclear firm in the first place.
Toshiba bought Westinghouse in 2006 for $5.4 billion, betting on a nuclear renaissance that hasn't materialized — stymied by cheap natural gas, the Fukushima Daiichi nuclear disaster triggered by a tsunami and Westinghouse’s own public troubles with the construction of the first new reactors in the U.S. in three decades.
That acquisition has spiraled into the current mess that Toshiba is in, CEO Satoshi Tsanakawa told reporters in Tokyo on Tuesday, according to the Associated Press. The company is now attempting to sell off some of its profitable segments to stay afloat, with bankruptcy threatening.
As Toshiba deals with buyer’s remorse, it's not yet clear what all of this means for Westinghouse's future.
Westinghouse spokesperson Sarah Cassella said Tuesday that “no layoffs are being announced today.” She stressed that the company is even hiring in the segments that service operating nuclear plants. Westinghouse has 12,000 employees globally, including 4,500 in the region.
Nevertheless, Toshiba wants out. The Japanese company on Tuesday classified Westinghouse as a “medium-term business” and said it is seeking “strategic alternatives.” Mr. Tsanakawa said if selling Westinghouse is an option, Toshiba would like to pursue that option.
And, if a suitable suitor can be found, one industry observer noted, Westinghouse still has a pipeline of orders to work on.
Press accounts described a confusing and chaotic scene in Japan on Tuesday as Toshiba's deadline for reporting third-quarter financial results came and went, with the company saying at the last minute it was “not ready” to release the numbers.
It then filed paperwork asking regulators for a one-month extension to get its results in order.
Auditors had raised concerns that an investigation into potential failure of internal controls at Westinghouse might impact the parent company’s financial results.
Then, in a quixotic move a few hours later, Toshiba released the unaudited results to the public.
The documents revealed that Toshiba’s chairman Shigenori Shiga resigned his post over the matter but will reportedly stay on as an executive officer and focus on correcting things at Westinghouse, the company disclosed on Tuesday.
Danny Roderick, who had been Westinghouse’s CEO until he was promoted to lead all of Toshiba’s energy segments last year, has been dismissed from that role and is being sent back to Westinghouse to “concentrate on resolving issues.” He remains Westinghouse’s chairman.
The current issues stem from nuclear construction projects in Georgia and South Carolina. Westinghouse is managing the entire construction process and its cost of doing so has ballooned substantially — partly because of design changes ordered by regulators and partly because of project management issues, among other factors.
After both utilities that commissioned the projects and Westinghouse’s construction contractor, CB&I Stone & Webster, were bogged down in litigation over who should pay for the some $2 billion in cost overruns, Westinghouse bought the nuclear construction firm in 2015.
That acquisition put an end to the legal battles and was intended to give Westinghouse a better handle on construction oversight.
Westinghouse also brought in a larger construction company, Fluor Corp., to get things back on track in Georgia and South Carolina.
But “work efficiency (has) not improved, as initially expected,” Toshiba wrote in a presentation Tuesday. The company has learned that it’s facing another $6.1 billion increase in its project costs, more than half stemming from increased labor costs.
It is also involved in a dispute with CB&I over another $2 billion that Westinghouse said it is owed from the purchase of the nuclear construction firm.
After strong hints in recent weeks that Toshiba would no longer be involved in the construction of nuclear power plants outside of Japan as a result of its losses on Westinghouse, the company confirmed that direction on Tuesday, saying it will focus on supplying equipment and engineering to projects to avoid such entanglements.
As for projects currently on the table: Westinghouse would not be a construction manager for the six reactors being considered for India’s east coast, Toshiba said. It would instead offer equipment and engineering for the project.
In the U.K., where Toshiba has a 60 percent stake in a project to bring three AP1000 reactors to Cumbria, the company said it will try to sell its shares and will participate in the project as long as it involves no risk from construction.
That will make it difficult to compete with state-owned nuclear companies that have government backing and resources to bid on construction projects.
And, although Westinghouse has a healthy pipeline of new nuclear reactor projects in its portfolio, finding someone to take on that cost and risk is likely to be a challenge.
With Toshiba saying it would like to sell Westinghouse, the question turns to who would want to buy such a company.
On the one hand, it has new reactor orders and successful fuel and plant servicing businesses. On the other, it is mired in cost overruns and still unknown liabilities from its ongoing construction projects and its dispute with CB&I.
Dan Yurman, a nuclear energy blogger and industry observer, said the most likely suitors may come from private equity.
If a private equity player can put together a consortium to carry out Westinghouse’s pipeline of orders, infuse cash into the company while getting it in shape, that buyer could do well in the long run, he said.
It’s unlikely that a large construction firm or a public company that could afford to absorb Westinghouse’s liabilities would want it, he said.
As for Toshiba, “Westinghouse might be better off without them,” he said.
Anya Litvak: email@example.com or 412-263-1455.