Shaw Group said it will sell its 20 percent stake in nuclear power plant company Westinghouse Electric Co back to Japan's Toshiba Corp to eliminate nearly $1.7 billion of debt and strengthen its balance sheet. Shares of Toshiba fell more than 7 percent to 2-1/2-year lows on Tuesday on concerns the chipmaker would be saddled with costs of buying additional shares it agreed in principle to acquire five years ago, before Japan's worst nuclear disaster put a chill on global demand for new reactors.
It was earlier reported that Toshiba was in talks with Shaw Group over the US company's 20 percent stake in Westinghouse. Shaw partnered Toshiba and Japanese engineer IHI Corp to buy Westinghouse from British Nuclear Fuels PLC for $5.4 billion in 2006. Toshiba bought 77 percent, Shaw purchased 20 percent, and IHI 3 percent.
Toshiba's stake in Westinghouse fell to 67 percent after the company sold part of the stake to Kazakhstan's state-owned nuclear power company Kazatomprom. "The company (Toshiba) is not cash-rich, so investors are concerned that it may have to go through equity financing if it decides to buy the stake," said Makoto Kikuchi, chief executive of Myojo Asset Management.
Shaw has an option under the original deal to sell the Westinghouse stake to Toshiba. That option expires in February 2013. In a statement on Tuesday, Shaw said its Nuclear Energy Holdings LLC unit will exercise its yen-denominated put options. Since the 2006 acquisition, the yen-denominated debt has risen by around $600 million to almost $1.7 billion.
The stake sale is taking place at a time when nuclear energy strategy has been reviewed globally after Japan's nuclear power plants were severely damaged by the earthquake and tsunami that hit the nation's north-eastern coast in March. Shaw said that while the stake sale ended a formal contractual arrangement with Toshiba, the two companies, and Westinghouse, would continue their global co-operation.
Shaw and Westinghouse are under contract for 6 new AP1000 nuclear power units in the United States and 4 units being built in China. Founded in 1886, Westinghouse pioneered long-distance and high-voltage power transmission. It also built the reactors for the world's first nuclear submarine and nuclear aircraft carrier.
The stake in Westinghouse generated $24 million in cash for Shaw every year through dividend payments, or a 2.2 percent dividend yield. Toshiba, the world's No 2 maker of flash memory chips, has been under pressure to trim its non-core operations as it steels itself for quake-hit demand in Japan.
The company reported in July an 88 percent fall in quarterly operating profit, blaming a slide in chip prices. "For Toshiba, this (additional stake purchase) will be a burden. They will have to divert resources they would probably want to deploy elsewhere," said Damian Thong, Macquarie Capital analyst. "I don't think it's such a big problem for Toshiba to borrow money to do this, but it's still an additional burden." Toshiba shares ended down 5.1 percent on Tuesday after dropping as much as 7.3 percent. Volume was heavy, with 82.3 million shares changing hands compared with the 90-day average volume of 34.4 million. Japan's main stock index was down 2.2 percent.