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Toshiba to Buy Shaw’s Stake in Westinghouse for $1.6 Billion

Toshiba Corp. will buy Shaw Group Inc.’s 20 percent stake in nuclear-plant designer Westinghouse Electric for about $1.6 billion, increasing its share to 87 percent.

Shaw is exercising its option to sell the stake to Toshiba after a rise in the value of the yen helped to boost its Westinghouse debt by more than 50 percent during the past five years, according to a statement yesterday. The option to sell was part of the companies’ 2006 purchase of Westinghouse.

Toshiba will pay about $1.6 billion for the stake, Shaw Chief Executive Officer and Chairman James Bernhard said on a conference call. Toshiba is open to new partners in Westinghouse, designer of the AP1000 and Advanced Boiling Water reactor designs, and “several companies” have expressed interest in investing, the Tokyo-based company said in a separate statement.

Toshiba said in May it expects to win 39 reactor orders, generating 1 trillion yen ($13 billion) in revenue from its nuclear business in the year ending March 2016. The company has warned about possible delays in approval of new construction projects. The U.S. and other nations are reviewing regulations after a March 11 earthquake and tsunami in Japan caused the worst nuclear accident since Chernobyl.

Toshiba fell 5.1 percent to close at 297 yen yesterday, the lowest since April 2, 2009, after the Wall Street Journal reported it was in talks to buy the Shaw stake. Shaw increased $1.70, or 7.8 percent, to $23.53 at 4:01 p.m. in New York Stock Exchange composite trading, its biggest gain since Nov. 29.

Raise Buyout Cash

“The market is estimating that Toshiba may need to raise about 80 billion yen ($1.05 billion) worth of funds for the buyout,” Ikuo Matsuhashi, a Tokyo-based managing director for Goldman Sachs Group Inc., wrote in a note issued before the announcement. “People might interpret this as Shaw Group exercising a put option because they’re downgrading their mid-term outlook for nuclear power business.”

Toshiba has slumped 41 percent since a March Japanese earthquake and tsunami wrecked Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The company helped build four of the six reactors at the site. Before today, Shaw had declined 44 percent in the same period.

Toshiba paid $4.16 billion for its 77 percent stake in Westinghouse in 2006. It nows owns 67 percent after Kazatomprom, Kazakhstan’s state nuclear company, purchased 10 percent in 2007. Japan’s IHI Corp. owns the remaining 3 percent.

Vogtle Reactors

There are orders for 10 of Westinghouse’s AP1000 reactors in the U.S. and China, including the two-unit Vogtle plant proposed by Southern Co. in Georgia. Toshiba said Shaw will remain the contractor on reactors that have been ordered and will be considered for future nuclear projects.

Shaw will lose exclusive rights to build the reactors, the engineering and construction company said.

The sale will eliminate Baton Rouge, Louisiana-based Shaw’s yen-denominated debt as the U.S. dollar tumbled against the Japanese currency.

“It’s something we’ve been considering for quite some time,” Shaw Chief Financial Officer Brian Ferraioli said on the conference call yesterday. “The continued appreciation of the yen against dollar has been relentless five quarters in a row.”

The Japanese currency has surged 35 percent against the U.S. dollar since Shaw sold bonds to buy its Westinghouse stake in October 2006, according to Bloomberg data. It has risen 4.9 percent this year.

Shaw had an $85 million loss related to yen appreciation in the quarter ended Aug. 31, Ferraioli said.

Repaying Bondholders

Shaw paid $1.08 billion for its share of Westinghouse in 2006. As part of that acquisition, Toshiba is obligated to pay Shaw at least 96.7 percent of its share of the Westinghouse debt, according to the statement from the construction company. Based on Aug. 31 exchange rates, Shaw said it would’ve recorded a pretax gain of $545 million on the sale. Actual gain or loss will be set at time of sale, it said.

The sale option will be exercised automatically on Oct. 6, 2012, if bondholders don’t consent to redeem the bonds early, Shaw said. Proceeds will be used to fully repay the bonds, due March 15, 2013.

Westinghouse Electric was founded in 1886 and built in part on Nikola Tesla’s patents for technology using alternating currents. The company’s units once made everything from trains to elevators to television shows. The commercial nuclear business was sold in 1999 by CBS Corp. to BNFL, the U.K. government’s nuclear fuel company.

“We will remain a U.S. company,” Vaughn Gilbert, a Westinghouse spokesman, said in an interview. “We’ll operate as we always have.”

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