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| Fig. 1: Model of One Type of Toshiba Nuclear Reactor (Source: Wikimedia Commons) |
Japan-based Toshiba Corporation has recently found itself in a bind within its nuclear energy sector. Specifically, the corporation is looking at losses amounting to billions of dollars.
Toshiba is a conglomerate corporation meaning that it invests and takes on a controlling stake in businesses within multiple sectors. While the varying companies Toshiba owns are distinct in their business practices and responsible for their own operations, they all must report back to Toshiba, their parent company. Toshiba's goal is to diversify its holdings and seek out growth in many industries including the industrial, business, power/energy, retail and semiconductors sectors.
In 2006, Toshiba acquired a 77% stake of Westinghouse while the remaining 23% of the company was split between two other partners. Westinghouse has a strong market presence and expertise within nuclear power generation and nuclear fuel. [1] The acquisition of Westinghouse for $5.4 billion seemingly allowed for Toshiba to have a headstart on leading the nuclear energy industry. This strength derives from procured advantages in manufacturing, marketing, sales, engineering and R and D. [2] This is reflected in Toshiba's nuclear energy sector bringing in nearly a third of its revenue.
Westinghouse decided to acquire an American construction firm, CB&I Stone and Webster for $229 million from Chicago Bridge and Iron Company(CB&I). [2] CB&I Stone and Webster was seen as a beneficial addition to Westinghouse due to its nuclear construction and integrated services. After the acquisition, the company's two main projects in the US involved inputting new nuclear reactors in existing power stations at the VC Summer station and Alvin W. Vogtle plant. However, these projects are now years delayed and billions of dollars over budget. The costs of this project are indicating that Toshiba overvalued CB&I Stone and Webster's assets.
These losses have became the subject of a lawsuit between CB&I and Westinghouse. CB&I claimed that Westinghouse owed them approximately $430 million. This lawsuit was filed by CB&I to stop Westinghouse from claiming that CB&I actually owed them $2 billion dollars after re-adjustments to the net working capital of CB&I Stone and Webster. [3] Ultimately the judges did not vote in Westinghouse's favor. [4]
Toshiba was caught in the high water, not only because of the acquisition of CB&I Stone and Webster now going from costing millions to billions, but also because of an accounting scandal they were caught in. The company had been overstating its profits by $1.2 billion. In a time where Japan has been cracking down on corporate governance, Toshiba was fined a record $60 million for their dishonesty. [5]
As a summation, an accounting scandal, a write down of impairment charges of $1.3 billion for CB&I Stone and Webster, and a $2 billion write-down also related to understated assets of CB&I Stone and Webster culminate into losses that Toshiba cannot cover. [6] Further, the outcome of their accounting scandal also means that they cannot raise debt to alleviate some of the financial burden. Even if they could, Toshiba's situation leaves them on shaky grounds with shareholders made extremely evident from an extreme stock price drop after announcing in December that they will have extreme write-offs. [7]
Regardless of these occurrences, Toshiba's main goal is to expand its nuclear energy business. They plan to build 45 nuclear reactors, modeled in Fig. 1, by fiscal year 2030. [2] While many believe this is not feasible, Toshiba is depicting the importance of this sector through compensating by selling off portions of their other businesses. For example, they are looking to sell 20% of their chip company, the second highest valued in the world. [4] Additionally, they are exiting the PC space. [6] Although these are Toshiba's plans, the outcomes of this suit may result in Toshiba exiting the Nuclear Energy space overall.
© Lena Tarhuni. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] H. H. Baker, Jr., "Final Acquisition of Westinghouse Electric Company by the Toshiba Corporation of Japan From the Government of Greate Britain," Baker Donelson, 4 Oct 06.
[2] J. Soble, "Toshiba Could Lose Billions From Troubled US Nuclear Power Deal," New York Times, 27 Dec 16.
[3] G. Roumeliotis, "Toshiba's Dispute with CB&I Over Nuclear Engineering Unit," Reuters, 28 Dec 16.
[4] B. Wilson, "Toshiba: What's Going Wrong?" BBC News, 29 Mar 17.
[5] A. Fukase, "Toshiba Accounting Scandal Draws Record Fine From Regulators," Wall Street Journal, 7 Dec 15.
[6] "Toshiba May Take a Multi-Billion Dollar Hit on Its U.S. Nuclear Acquisition," Fortune, 28 Dec 16.
[7] S. Pham, "Toshiba Chairman Steps Down As Company Takes $6.3 Billion Hit From Nuclear Unit," CNN Money, 14 Feb 17.
