/

Toshiba’s troubled Westinghouse may be strategic fit for China or South Korea

by

Bloomberg

If Toshiba Corp. parts ways with its embattled U.S. nuclear unit, Westinghouse Electric Co., the likely buyer may be a regional neighbor with global ambitions.

Westinghouse would be a strategic fit in China or South Korea, which are developing their own reactors for export, according to analysts and academics.

The region is also home to about half the world’s nuclear units under construction, while China is forecast to have the largest fleet of reactors by the middle of next decade.

Toshiba, which is suffering from a ¥712.5 billion write-down on its nuclear division and selling assets to stabilize its balance sheet, has said it will consider selling Westinghouse to the right partner. On Tuesday, the Tokyo-based electronics maker for the second time missed its deadline to release its third-quarter earnings report.

“South Korea and China are probably best-placed,” said Matthew Cottee, a research associate in the nonproliferation and nuclear policy program at the International Institute for Strategic Studies. “There has been a notable shift in the civil nuclear landscape recently. Former nuclear brands from France and Japan, such as Areva and Toshiba, are in decline.”

While Westinghouse is shackled by risks from delayed projects in the U.S., the company may offer a treasure trove of intellectual property and expertise. Half of the world’s nuclear reactors incorporate Westinghouse technology, while the company’s AP1000 reactor is being considered for orders in a number of growing markets.

Westinghouse has hired PJT Partners Inc. to help advise its business. Pittsburgh-based Westinghouse has also brought in bankruptcy attorneys from Weil Gotshal & Manges LLP.

“Any sale would likely be preceded by a restructuring of Westinghouse so that the ‘new Westinghouse’ being sold would be free of any liabilities arising from the current new build projects that Westinghouse is constructing,” said George Borovas, the global head of the nuclear group at Shearman & Sterling LLP, a New York-based multinational law firm.

The AP1000 is a so-called generation III+ reactor, designed to be easier and less expensive to install and operate, and with enhanced safety features to avoid the kind of disaster Japan suffered during the Fukushima nuclear crisis. But the new reactors run into tighter regulations and complex designs, resulting in construction delays and rising costs.

While Toshiba doesn’t plan to sell a Westinghouse stake at the moment, it will consider it if it finds a partner committed to maintaining and developing the business in a way acceptable to its customers and governments where it operates, company spokesperson Yuu Takase said.

“Nuclear will likely come back in the future and the Westinghouse value should increase,” said Lake Barrett, a former official at the U.S. Nuclear Regulatory Commission.

Following are some potential buyers:

China

China General Nuclear Power Corp. (CGN), along with fellow state-run nuclear giant China National Nuclear Corp. (CNNC), is seeking to sell and build nuclear power plants across the globe.

China is likely to be the first nation to begin operating an AP1000 reactor and a supply chain within China has already been established to build the Westinghouse units.

The Chinese “are trying very hard to establish themselves on the export market as a reliable source of reactors, and purchasing Westinghouse might give them some credibility,” said M.V. Ramana, a professor at the University of British Columbia.

CGN declined to comment. CNNC didn’t respond to requests for comment.

A sale of Westinghouse to state-run Chinese companies might run into national security concerns or political challenges in the U.S. and Japan, according to Shearman & Sterling’s Borovas, leaving South Korea as an easier fit.

South Korea

South Korea has emerged in the last few decades in the nuclear power industry and is one of only a few nations to start up and export third-generation reactors.

Korea Electric Power Corp. “might be interested in Westinghouse as they have been aggressively trying to expand market share in the international nuclear energy sector,” said Seong-ho Sheen, a professor at Seoul National University.

Though the APR1400 is an outgrowth of a design from a company bought by Westinghouse in 2000, there are differences. Westinghouse’s AP1000 is fully “passive,” meaning it can cool itself automatically without off-site electricity or pumps for additional water. South Korea’s APR1400 uses a hybrid safety system with a mix of passive and active features.

Korea Electric Power would mull a purchase if it receives a proposal from Toshiba, but isn’t actively considering buying Westinghouse, a company spokesman said.

Japanese consortium

Japan’s nuclear reactor builders — Mitsubishi Heavy Industries Ltd. and Hitachi Ltd., as well as Toshiba — are considering combining their fuel-supply units following the sustained shutdown of work after the Fukushima disaster.

The companies could join their nuclear businesses to preserve their hold on the technology, according to Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos.

But the biggest snag is that they use different technologies. Toshiba’s is “completely different” from Mitsubishi Heavy’s, MHI’s chief executive officer, Shunichi Miyanaga, told the Financial Times last month.

Hitachi isn’t considering a nuclear business tie-up between Mitsubishi Heavy and Toshiba, spokesman Hisahiro Sakai said . MHI currently has no plans to deepen its cooperation with Toshiba, the company said.