Westinghouse Electric Co. was dealt another blow Tuesday when its chances of getting nearly $2 billion for its doomed acquisition of a nuclear construction firm were extinguished by the Delaware Supreme Court.
The Cranberry-based nuclear technology firm is working through a complicated bankruptcy caused in large part by its December 2015 acquisition of Stone & Webster from Chicago Bridge & Iron. For more than a year, Westinghouse has been asserting that it is due $2.15 billion for that deal.
Since 2008, Westinghouse and Stone & Webster had been partners in building the first four new nuclear plants in the U.S. in three decades. The projects are worth tens of billions of dollars and by late 2015, all the major parties involved — Westinghouse, Stone & Webster, and the utilities that commissioned those plants in Georgia and South Carolina — were suing each other, arguing about who bears responsibility for delays and $2 billion in cost overruns.
To resolve the issue, Westinghouse orchestrated a deal. It would take over Stone & Webster, freeing its parent CB&I from all future liabilities associated with the projects. At the same time, it would get the utilities to drop the lawsuits in exchange for assurances that Westinghouse would take on the risk for future delays.
“This transaction gave Chicago Bridge a clean break from the spiraling cost of the nuclear projects,” the court decision said.
“The purchase price to be paid at closing by Westinghouse was set in the contract at zero, a figure in Yiddish that, perhaps appropriately given Chicago Bridge’s Chicago connection, sounds like an iconic linebacker,” the Delaware Supreme Court justices wrote, in an apparent reference to former Chicago Bears linebacker Dick Butkus, which to them sounded enough like the Yiddish word bupkis to warrant the contortion.
The purchase agreement, signed in late October, had a method for calculating post-closing costs. It valued Stone & Webster’s working capital at $1.17 billion and stipulated that if, by the time the deal closed, that number turned out to be lower, CB&I would have to pay Westinghouse the difference. If higher, Westinghouse would have to pay.
It was at this true-up stage after closing that Westinghouse decided it was owed $2.15 billion, saying that Chicago Bridge & Iron misrepresented its financials in several ways.
The justices of the Delaware Supreme Court pulled no punches in disagreeing with the nuclear firm.
“Westinghouse’s argument could be summarized as (this),” they wrote. “… ‘although our initial deal was you get a release from the spiraling costs of these projects going forward and we get the bulk of the potential upside, now we want to stick you with close to $1 billion more of those costs that you thought you were getting rid of when you gave us Stone.’”
The so-called liability bar — all of the ways in which Westinghouse released Chicago Bridge & Iron from responsibility and liability in its purchase contract — was unusual in its breadth, the justices said. But it protects the construction company from what the court said were Westinghouse’s efforts to essentially renegotiate the purchase contract.
This matter ended up in court after CB&I feared Westinghouse would try to use the true-up process, which is to be overseen by an auditor, to make these claims and sought a court judgment that the nuclear firm shouldn’t be allowed to do so. Although a lower court sided with Westinghouse, Tuesday’s verdict means Westinghouse can now seek only $70 million from CB&I.
This isn’t the first time Westinghouse’s calculation of the costs would land the company in trouble.
A whistle-blower at Westinghouse told the company’s leadership that certain senior managers were pressuring workers during the calculation so the losses from the deal wouldn’t look so bad. The allegation launched several internal investigations, which involved interviews with 40 senior managers and the inspection of 600,000 emails, according to executives at Toshiba Corp., Westinghouse’s majority owner.
“As a result, we have confirmed behaviors deemed to be inappropriate pressures by certain senior managers in order to reduce the said loss to an inappropriate level,” Ryoji Sato, Toshiba’s audit committee chairman, told analysts during the company’s earnings call in April. Those found responsible have been dealt with, he said.
Meanwhile, Toshiba and its auditors still can’t agree on whether that inappropriate pressure affected the company’s financial results. Toshiba says it’s confident that it hasn’t — something Westinghouse CEO José Emeterio Gutiérrez also confirmed to the Post-Gazette in April. But auditors still haven’t signed off on Toshiba’s third-quarter financial statements and the company has been releasing its figures unaudited.
Anya Litvak: email@example.com or 412-263-1455.