Critical Overview: The Japanese conglomerate, Toshiba, has experienced a difficult week due to a series of unfortunate events, starting with the announcement that the Japanese government would not bail them out to prevent falling share prices and bankruptcy of its nuclear power business. The fallout from revelations of the bankruptcy of its Westinghouse nuclear business has led to a decline in Toshiba’s share price and investor panic. The crisis is expected to have repercussions for years to come.
Toshiba’s Westinghouse Nuclear Business Declares Bankruptcy The Pittsburgh-based nuclear company, Westinghouse, filed for Chapter 11 bankruptcy on March 29th, which was unsurprising news for many. The following day, a US bankruptcy judge from the Southern District of New York authorized the company to borrow an initial $350 million to support its global operations during the restructuring process. The loan would also support the company’s profitable nuclear maintenance and fuel Europe businesses that were largely unaffected by the bankruptcy.
Westinghouse was commissioned by SCANA Corp. and Vogtle, owned by Southern Co., to build four nuclear plants in the southeast of the US that were scheduled to start producing power soon. However, the bankruptcy has thrown those plans off course. Westinghouse is currently struggling to stay afloat to complete the projects, which represent the first US nuclear projects to be approved since the 1979 Three Mile Island accident. The cost overruns are due to increasing demands from regulators, and the rising cost of raw materials and labor, according to the company.
Cost Escalation for SCANA and Southern Toshiba bought Westinghouse in 2005 for $5.4 billion, which upset the company’s finances. The Westinghouse acquisition was expected to help Toshiba diversify from consumer electronics, a market it was losing to China’s growing economy. However, the catastrophe that occurred in Fukushima reduced the global demand for nuclear energy. Stricter safety regulations drove up the cost of nuclear energy and made foreign countries wary of implementing nuclear power policies.
SCANA and Southern have been determined to continue with the project, regardless of the consequences. They could potentially face a collective bill of $8.5 billion, which would inevitably compromise investor confidence and drag down their share prices. Greg Gordon, a lawyer for Southern Co.’s Georgia utility, told the court that they were facing a stark choice – to shut down because Westinghouse no longer wanted to provide support or step in and take on direct payment of workers and vendors.
Westinghouse Failure and Toshiba’s Memory Chip Business Westinghouse’s failure comes when Toshiba is just starting to recover from a two-year long profits padding scandal. However, the bankruptcy of its Westinghouse nuclear business has hit the company’s reputation among investors hard, leading to a decline in share prices. In a bid to save itself from going under, Toshiba is selling its beloved NAN memory chip business. The company’s shareholders approved the sale of the memory chip business, but not before denouncing the actions of the management team.
Conclusion: Toshiba has had a difficult week, and the bankruptcy of its Westinghouse nuclear business has led to a decline in share prices and investor panic. SCANA and Southern are determined to continue with the project, but they could potentially face a collective bill of $8.5 billion, which would compromise investor confidence and drag down their share prices. To save itself from going under, Toshiba is selling its NAN memory chip business.