Back in the year 2006, Japanese multinational conglomerate Toshiba Corporation purchased the United States’ based nuclear company Westinghouse Electric Company LLC for $5.4 billion right before the nuclear industry was expected to take off.
Over a decade later, on February 14th, 2017, the company had to write down a $6.3 billion loss on the promising nuclear company and total losses are estimated to be upwards of $9 billion. Due to these circumstances, Toshiba filed for chapter 11 bankruptcy on March 26th.
But what caused such a promising investment to go wrong?
Things started off well for Toshiba when they first purchased Westinghouse. In the year 2007, they decided to build their world headquarters in Cranberry Township, PA. This three building facility is 844,595 square feet in size and sits on 83 acres of land.
The total costs for the headquarters ended up being in the range of $200 million. On top of this, this nuclear engineering campus contains a workforce of about 3,000 employees.
To keep the momentum going, in 2008 Westinghouse Electric was granted with permits to construct nuclear power plants in the United States. This made Westinghouse the first U.S. based company to obtain these permits since the Three Mile Island incident 30 years earlier in 1979.
After receiving these permits, Westinghouse could begin working on its infamous AP1000 reactor which the company starting designing in 2005. Also in this year, Westinghouse began building 4 of the 2005 AP1000 reactors in China and made a contract with the Shaw Group to construct reactors in the United States.
This is when the problems started to emerge. By 2012, the subpar work that was being done by the Shaw Group came to light. The company wasn’t following the specific instructions given by Westinghouse to build the costly reactors.
Later that year, Chicago Bridge & Iron bought the Shaw Group for $3.3 billion. In 2015 they sold the majority of what was the Shaw Group to Toshiba for a price tag of $229 million. The price was significantly lower since Toshiba agreed to remove liabilities associated with Westinghouse’s projects.
Following the closing of the deal, Toshiba wanted to renegotiate the sale since they claimed that the assets that were sold to them were inflated by $2.2 billion. This led to CB&I suing Toshiba for breach of contract and takes us to where Westinghouse stands today.
Outlook is Uncertain
With the 2011 Fukushima disaster in Japan, low oil prices and low natural gas prices, the U.S. nuclear industry has really taken a hit.
Westinghouse should use their recent filing for bankruptcy as an opportunity to restructure the company and to improve their management staff. Nuclear energy is a vital and clean resource that needs to be continually innovated by companies like Westinghouse.