Westinghouse seeks fees, protections for firm set to acquire it

It will be months before the proposed $4.6 billion acquisition of Westinghouse Electric Co. by a Canadian asset management firm is hashed out.

But some details of the sales agreement, Westinghouse’s plan to emerge from bankruptcy, and the possibility of a $7.5 billion curve ball are likely to come into focus in the next two weeks.

The Cranberry-based nuclear firm is asking its bankruptcy judge to approve a path to a private sale of all of its assets to Brookfield Business Partners and, while that sale is pending, to give the asset management firm certain protections to keep the buyer’s interest.

For example, Brookfield wants a breakup fee of $75 million if the deal falls through, plus up to $25 million to cover the costs of having pursued it. It also wants a pledge from Westinghouse that the company won’t solicit other offers or share information with other firms that might want to best the deal.

The proposed sales agreement doesn’t say anything about staffing levels or layoffs, but it does stipulate that after the sale closes, Brookfield will keep current Westinghouse employees at their same salary and benefits for a year. It also will have to give them “cash incentive opportunities” that exist at closing or bring back the most recent ones that existed before Westinghouse cut them.

Westinghouse said last week that no further layoffs, beyond the approximately 1,500 cuts announced last year, are planned before the sale closes. The company employs about 11,000 total and 3,400 in Western Pennsylvania.

Retiree health and life insurance benefits will not be cut or reduced as a result of the deal, states the agreement between Westinghouse and Brookfield made public on Thursday.

The document also sets a deadline for Westinghouse to file its reorganization plan with the bankruptcy court by Jan. 29.

A claim like no other

Next week will be a busy one for Westinghouse’s cadre of lawyers.

On Thursday, the bankruptcy court will take up the curious case of Citigroup Financial Products Inc., which last month filed a claim against Westinghouse for $7.5 billion.

After South Carolina utilities canceled the massively delayed and overbudget project to build two Westinghouse AP1000 nuclear plants and Westinghouse’s parent company Toshiba Corp. pledged to pay them $2.2 billion to cover liabilities, the utilities sold all their claims against Westinghouse to Citigroup.

Now, Citigroup is trying to amend those claims with a twist: It says that a liability cap negotiated between Westinghouse and its utility clients doesn’t apply because Westinghouse lied to its clients.

“Despite knowing that its business was not viable [Westinghouse] attempted to ‘extend’ the time until its unavoidable collapse and ‘pretend’ that its business remained viable to extract over $1.275 billion from the [utilities],” Citigroup wrote in a lengthy document which, among other things, accused Westinghouse of running a Ponzi scheme by trying to secure new power plant orders and use the proceeds to complete existing ones.

Citigroup, it should be noted, also is the bank behind Westinghouse’s $800 million bankruptcy financing.

Westinghouse has objected to Citigroup’s claim, both its content and its filing, saying the claim would scuttle the sales process if allowed to proceed. The company will make its case to the judge next week.

Sales process

On Friday of next week, Westinghouse will be back in bankruptcy court to ask for approval of the sales process for Brookfield. Westinghouse and its suitor would like this to be a private sale instead of the common bankruptcy process of holding an auction to get the highest bidder.

Westinghouse has argued in recent documents that it already has given anyone who might have been interested in buying the company a shot at the prize. Its bankruptcy advisors reached out to 118 potential investors, signed nondisclosure agreements with 54 of them, and got 14 bidders to submit indications of interest.

By mid-December, the company had three binding bids in its hands and one nonbinding proposal that it rejected.

Westinghouse and its advisers spent 2½ weeks negotiating with the bidders and pulled an all-nighter in New York on Jan. 3, going between them to extract the highest offer.

The next day, they signed a letter of intent and announced the news.