Bankrupt Westinghouse to be sold for $4.6 billion

Canadian asset manager inks deal to buy nuclear firm

Westinghouse Electric Co., the Cranberry-based nuclear firm whose past year has put U.S. nuclear development in peril and nearly brought its parent company Toshiba to the brink of collapse, has announced it will be acquired by Brookfield Business Partners for $4.6 billion.

The deal is expected to close in the third quarter of 2018 and is subject to the approval of Westinghouse’s bankruptcy judge. It is, however, still preliminary. Thursday’s announcement said a letter of intent has been signed, effectively telling other bidders that Westinghouse doesn’t intend to pursue their offers and will instead move forward-toward a deal with Brookfield.

It’s not clear what will happen to Westinghouse’s new reactor business, which triggered the company’s bankruptcy as schedule delays and cost overruns shut down a project to build two AP1000 nuclear power plants in South Carolina and nearly crippled a similar project in Georgia.

Brookfield doesn’t want anything to do with the U.S. nuclear plants under construction, a company official said. Initially, an official said the company won’t pursue any new reactor projects in the U.S. or abroad.

Later on Thursday, Brookfield clarified that “it believes the AP1000 design and technology is core to the company” and said the firm “looks forward to investing in its growth in the U.S. and around the world.”

The Toronto-based asset manager did not mention the AP1000 in its statement announcing the deal, focusing instead of Westinghouse’s “strong market position” in servicing existing plants.

“The majority of (Westinghouse’s) profitability is delivered through regular scheduled services which are provided under long-term contracts” the statement said, referring to the company’s nuclear fuel and plant outage activities.

A narrowed focus on existing plants would turn Westinghouse’s business strategy on its head, said Ed Davis, nuclear consultant with Washington D.C.-based Pegasus Group.

“It’s always been a razorand-razor-blade business,” Mr. Davis said. “You sell the plant and then you sell these long-term contracts for maintenance services and fuel for thelife of the plant.”

It’s likely that if Brookfield isn’t interested in promoting Westinghouse’s AP1000 technology,it would try to sell that business to someone else who is,he suggested.

That would have significant implications for the globalnuclear industry.

There is little more than a handful of companies around the world that design nuclear power plants. In the U.S., the competition was between Westinghouse and GE, but GE has not been active in the space in recent years, nuclear expertssaid.

Meanwhile, Westinghouse has submitted a bid for new AP1000 reactors in Saudi Arabia and has been involved in a molasses-paced effort to bringits plants to India.

Westinghouse spokeswoman Sarah Cassella said there would be “no changes to the current projects or bids expected as a result of the transaction.”

The $4.6 billion price tag raised eyebrows across the nuclear industry, with many saying that it’s good for creditors but puzzling given Westinghouse’s current status and history.

When Toshiba bought Westinghouse for $5.4 billion in 2006, it was widely considered to have overpaid for the company.In the years that followed, the Japanese conglomerate has had to write down all of the goodwill on that transaction, proving the criticscorrect.

In Brookfield Business Partners’ latest investor presentation, the company — whichhas a market cap of $3.8 billion — said it targets annual returns of 15 percent to 20percent on its investments.

It has a reputation for holding assets for long periods of time — some for decades, a spokesperson said. Brookfield’s parent company, Brookfield Asset Management, owns gas distribution networks, wastewater facilities, real estate, and wind farms. This would be its first entryinto nuclear services.

Westinghouse’s CEO José Emeterio Gutiérrez said in a statement Thursday that the deal “reaffirms our position as the leader of the global nuclearindustry.”

In a note sent to employees, Westinghouse said it does not expect staffing changes during the sales process, Ms. Cassellasaid.

“We do not currently anticipate any further layoffs once the transaction closes,” she added.

Westinghouse employs about 11,000 total and 3,400 in WesternPennsylvania.

The deal also won’t impact Westinghouse’s role at Plant Vogtle,the Georgia site where possibly the last two AP1000 plantsare being built.

According to statements from both parties on Thursday morning, the deal provides for Brookfield to assume “certain pension, environmental and other operating obligations.”

Ms. Cassella said that the “transaction will not impact pay or benefits programs.”