Shaw Group Inc. confirmed plans to sell its 20% stake in Westinghouse Electric Co. back to Toshiba Corp. (TOSYY, 6502.TO), a move that will eliminate about $1.7 billion of Shaw's debt.
The Wall Street Journal reported Monday that Toshiba was in talks to buy out Shaw Group's 20% stake in the nuclear power-plant company, which would wipe out any U.S. ownership of the 125-year-old American company.
In October 2006, Toshiba paid about $4.2 billion for 77% of Westinghouse, whose roots date back to 1886. Shaw agreed to buy one-fifth of Westinghouse, issuing $1.08 billion of bonds in a private placement to do so. Another Japanese company, Ishikawajima-Harima Heavy Industries Co., owns the remaining 3%.
Since the acquisition, Shaw said the yen-denominated debt has increased by about $600 million to a total of almost $1.7 billion. Toshiba will buy the stake for at least 96.7% of the principal amount of the bonds. Shaw's Nuclear Energy Holdings unit will fund up to the 3.3% shortfall of the principal amount of the bonds, which was about $55.4 million at Aug. 31.
Shaw may recognize a gain once the put options are settled. At Aug. 31 exchange rates and assuming early exchange, the pretax gain would have been about $545 million.
Shaw was one of four minority partners recruited to join the 2006 deal, and was supposed to take a 5% stake, while Toshiba took 51%. After two of the investors, Japan's Marubeni Corp. and Fluor Corp. (FLR) backed out of the deal, Toshiba and Shaw increased their stakes. As part of its agreement, Shaw had the option to sell all or part of its 20% stake to Toshiba before the six-and-a-half-year maturity of the bonds.
Nearly one in every two nuclear power plants in operation around the globe is based on Westinghouse technology, according to the company's website.
Enthusiasm for nuclear energy has dimmed since Japan's March earthquake and tsunami, which caused explosions and a meltdown at the Fukushima Daiichi nuclear power plant.
REFERENCE: Melody Warner w/Marketwatch.com