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Toshiba Exorcises Westinghouse Ghost With Sale to Brookfield

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Little more than a year after flagging multi-billion dollar writedowns that threatened its very survival, Toshiba Corp. has gained some closure with the sale of its former nuclear unit Westinghouse Electric Co.

Westinghouse was put into bankruptcy by Toshiba in March after project delays crippled earnings from the nuclear plant business. On Thursday, Brookfield Business Partners LP agreed to buy what remains of its U.S. business out of bankruptcy, as well as its non-bankrupt European business, for $4.6 billion.

Toshiba bought Westinghouse for $5.4 billion in 2006 as a way to diversify away from consumer electronics, but struggled to build new reactors and was wrong-footed by changes in the nuclear industry. That includes the impact of Japan’s 2011 Fukushima meltdown and a flood of cheap natural gas in the U.S. While it’s unclear what benefit the Tokyo-based company will see from a sale, it will help Toshiba move on in the eyes of investors.

“In terms of its image, this is a positive. Westinghouse has been a ghost that haunted Toshiba for a long time, so to be rid of that can be interpreted as positive,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities. “But in terms of Toshiba’s fundamentals you can’t say this has much impact."

Shares of Toshiba rose 2.2 percent to 330 yen in Tokyo on Friday. The company posted a net loss of 966 billion yen ($8.6 billion) last fiscal year, largely on the impact of the Westinghouse debacle.

“The decision on the buyer for Westinghouse is good news for all creditors, including ourselves,” Toshiba spokesman Ryoji Shinohara said in response to an inquiry by Bloomberg News. “We believe the recovery of Westinghouse will move forward through the U.S. bankruptcy court proceedings."

Changed Business

Westinghouse is the first foray into the nuclear sector for Brookfield. The company has a plan to reorganize the bankrupt U.S. assets, according to a person with knowledge of the sale. The deal, which still needs court and regulatory approval, was reached Wednesday night, said the person, speaking on condition of anonymity because some details are not yet public.

Brookfield’s Big Nuclear Bet Isn’t as Bold as All That: Gadfly

The sale marks a positive turn in a long saga of financial woes that led to the bankruptcy and also battered U.S. utilities that had taken on their construction.

“Brookfield’s acquisition of Westinghouse reaffirms our position as the leader of the global nuclear industry,” Westinghouse Chief Executive Officer Jose Emeterio Gutierrez said in a statement on Thursday. He said the deal will transform the company into a stronger, more streamlined business.

Since filing for bankruptcy in March, Westinghouse has said it will no longer take on the risk of building new atomic facilities, and will instead specialize in servicing reactors and selling designs.

The deal includes Westinghouse’s business in Europe, the Middle East and Africa, which had remained outside of bankruptcy protection, while at the same time drawing on some of the financing that the bankrupt units obtained from Apollo Global Management LLC.

Westinghouse had harbored hopes of up-ending the industry with the AP1000 reactor, which was developed to be safer than reactors of old. The design was supposed to revive an industry plagued by the accident at Three Mile Island in 1979. Instead, delays and overruns led to troubles that left Toshiba fighting for survival last year after writing down the value of the unit by billions.

“All in all, I think the Westinghouse adventure was very costly to Toshiba,” said Lake Barrett, an independent nuclear consultant and former official at the U.S. Nuclear Regulatory Commission.

— With assistance by Stephen Stapczynski

(Updates with comment from Toshiba in sixth paragraph.)
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