Making a big bet on the future of nuclear power, Toshiba of Japan agreed on Monday to buy Westinghouse Electric Co, the atomic energy division of British Nuclear Fuels, for US$5.4 billion.
The purchase price is about three times the amount analysts estimated in July, because of competition for the unit.
Toshiba outbid global giants like Mitsubishi Heavy Industries and General Electric.
The price is higher than a US$3.2 billion offer during an auction before Toshiba was chosen last month as the preferred bidder, and is almost fivefold the US$1.1 billion the UK government paid for Westinghouse in 1999.
Shares of Toshiba, Japan's largest maker of nuclear power-plant equipment, fell on concern over the overpayment. Toshiba's stock fell 0.7 percent to ?739 (US$6.26) at the 3pm close in Tokyo yesterday.
Moody's Investors Service yesterday said it may lower Toshiba's credit rating because the electronics maker's "financial flexibility" may be constrained by the purchase of Westinghouse.
Toshiba's long-term debt is now rated A3, four levels above the highest non-investment grade.
Atsutoshi Nishida, Toshiba's president, said on Monday that the company has paid a "correct price" for the company as demand for Westinghouse's reactor technology will triple Toshiba's nuclear energy business.
Toshiba's social infrastructure business, which includes nuclear power facilities, power turbines, elevators and medical systems, account for about 27 percent of total revenue and will probably rise to ?1.8 trillion in the year ending March 31, Toshiba forecast in April. Operating profit may rise 13 percent to ?48.6 billion.
Toshiba, which gets more than half of its operating profit from semiconductors, wants to expand its power plant operations because it expects the market for atomic energy to expand 50 percent by 2020.
Toshiba plans to keep at least 51 percent of the company and sell a minority stake in Westinghouse to several investors, he said.
Marubeni Corp, Japan's fifth-largest trading company, is in talks with Toshiba to invest in Westinghouse, Takashi Hashimoto, a spokesman at Tokyo-based Marubeni, said yesterday. Mitsui & Co is also interested in participating, although talks haven't begun yet, the company said last month.
Marubeni provides maintenance services to nuclear reactors in Japan, sells uranium and helps develop thermal and hydroelectric power plants. Mitsui is a sales agent for General Electric Co's power plant business in Japan and supplies nuclear fuel to Japanese power plants on behalf of WMC Ltd of Australia and other uranium miners.
Shaw Group Inc was also identified as possible partner, the Nihon Keizai newspaper reported last month.
Westinghouse, based in Pittsburgh, has 8,500 employees worldwide and a pretax profit of ?18 million (US$31.5 million) last year.
The company produces pressurized-water nuclear reactors, the most commonly used type, and the fuel for them, and does maintenance and repairs. Westinghouse estimates that half of the world's nuclear plants and 60 percent of those in the US use its technology.
By buying Westinghouse, Toshiba gets access to the pressurized water reactor technology preferred by China, which may spend as much as US$54 billion in the next 15 years building nuclear plants.
The company said it would pay for the purchase over three years, using available cash flow.
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