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Toshiba Talks Highlight Nuclear Power Slow Down

Toshiba CEO Norio Sasaki told Dow Jones in an interview today (Thursday) the company is negotiating with three potential buyers, including Chicago Bridge & Iron Company NV (NYSE: CBI), to purchase a 16% stake in the Westinghouse Electric nuclear power unit.

Toshiba said earlier this year it would consider offers as long as it retained majority control over Westinghouse.

Toshiba paid $4.16 billion in 2006 for a 77% stake in Westinghouse. In 2007, Toshiba sold a 10% stake in Westinghouse to Kazatomprom of Kazakhstan, leaving the company with 67% of Westinghouse.

But Toshiba's stake will jump to 87% in January when a sale from The Shaw Group Inc. (NYSE: SHAW) becomes final. Shaw in September 2011 exercised an option to sell its stock after it agreed to be taken over by rival Chicago Bridge & Iron.

An 87% stake would give Toshiba too much exposure to a nuclear industry rattled by the March 2011 accident at Japan's Fukushima nuclear power plant.

Changing Landscape in Nuclear Power

Demand for nuclear power has slipped since the Fukushima disaster fallowing Japan's earthquake and tsunami. Power to the plant's cooling systems was cut off, resulting in the meltdown of several of the plant's nuclear reactor cores.

An aggressive and vocal anti-nuclear movement has sprung up in Japan, Toshiba's home market.

But Lower House elections this month resulted in a landslide victory for the Liberal Democratic Party, which has vowed to restart Japan's idled nuclear power plants as soon as possible and wants to take a balanced approach to Japan's long-term energy needs, including nuclear power.

To the extent that the election was a referendum on nuclear power in Japan, the anti-nukes lost.

In the United States, the rapid development of cheap shale gas has also dimmed the prospects for nuclear power. But Sasaki thinks this will not change the outlook for nuclear power demand in Asia.

"If you buy North American natural gas at $2 to $3 [per million British thermal units, around the level seen over the past year], it would rise to $9 if you add costs of liquefaction and transporting it to Asia, and nuclear power is cheaper than that," he told Dow Jones.

But other analysts are questioning China's commitment to nuclear power, given slower growth and less opportunity for power companies to invest in new facilities.

Sasaki remains positive on the future of nuclear power despite the Fukushima disaster and competition from cheap shale gas. Sasaki said only countries that were not really committed to nuclear power have left the market.

Those countries with a strong commitment to nuclear power have not changed policy. But, in the wake of the Fukushima nuclear accident, they are reviewing regulations and modifying designs to incorporate the lessons learned from the accident.

"It's just that the demand will materialize two to three years later," Toshiba's Sasaki said.

Still, it's in Toshiba's best financial interest to shed some of its Westinghouse stake.

"It has been Toshiba's idea to keep a 51 percent share and let others hold the rest," Hideki Yasuda, an analyst at Ace Securities Co., told Bloomberg News. "It is good if the company can bring that to reality."

Toshiba's Heavy Costs

According to The Wall Street Journal, Toshiba will be able to tap a syndicated loan to fund the purchase of Shaw's Westinghouse shares but it will be a strain on Toshiba's balance sheet.

Toshiba's earnings in the July-September quarter doubled compared with the same quarter last year. But the company's Digital Products and Electronic Devices segments are struggling.

If Toshiba can find a buyer for the 16% of Westinghouse that it is looking to sell, that could bring in about $875 million.

In addition, Toshiba's Sasaki told Dow Jones that Chicago Bridge & Iron has expressed an interest in acquiring the 20% stake in Westinghouse originally held by Shaw Group. If CBI decides not to acquire the Westinghouse shares, Toshiba says that there are two other companies that have made "very good offers."

CEO Sasaki told The Journal the buyer would help Toshiba establish "a firmer footing" in target markets like China, Finland, Brazil, India, the U.S. and U.K.

Toshiba shares rose 3.2% to 321 yen by the end of trading in Tokyo.

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