Toshiba’s planned $4.6 billion sale of Westinghouse Electric Co., an often-teetering pillar of Western Pennsylvania’s economy for more than 130 years, is the latest chapter in the venture’s sometimes proud, sometimes tainted history.
This time, Westinghouse’s savior is Brookfield Business Partners, a Canadian distressed asset specialist that expects to earn at least 15 percent on its investments.
Brookfield inherits a business that, over the years, has been battered by ill-conceived uranium supply contracts; the fracking boom that provided abundant and cheap natural gas; nuclear meltdowns at Three Mile Island and Fukushima, Japan; and cost overruns and chronic delays at nuclear construction projects in South Carolina and Georgia.
The plan to sell the Cranberry company follows Toshiba’s decision to take Westinghouse into bankruptcy last March in order to wall off its other businesses from the troubled unit’s liabilities.
Bankruptcy is not an unfamiliar experience for the nuclear power and services provider. George Westinghouse — the irrepressible inventor who launched the company in 1886 — saw the venture go bankrupt twice during his tenure. Westinghouse was ousted as chairman after the second bout in 1909.
Two decades earlier, Westinghouse and Thomas Edison’s General Electric had waged a punitive battle over whether Westinghouse’s alternating current technology for supplying electricity would win out over GE’s direct current technology.
More than a century later, it was the meltdown of GE nuclear reactors at Fukushima that dimmed Westinghouse’s prospects. The meltdown gave energy providers second thoughts about the feasibility of nuclear power replacing environmentally challenged coal as a way to generate electricity. Falling oil and natural gas prices also made the nuclear alternative less appealing.
The volatile perception and economics of nuclear power have always influenced the strategy of Westinghouse’s managers.
In the 1970s, the company was battered by escalating uranium prices. Westinghouse’s long-term contracts for supplying the nuclear fuel left little wiggle room to pass along the price increases. Although the misstep was not nearly as costly as it could have been, it diverted management’s attention at a time when competitors were nipping at its heels.
When a Babock & Wilcox-designed nuclear reactor at the Three Mile Island plant outside of Harrisburg suffered a partial meltdown in 1979, Westinghouse’s already sluggish nuclear business suffered even more.
The diversification strategy the company was already pursuing made even more sense. Over time, a dazzling array of businesses fell under the Westinghouse umbrella, including cable television, appliances, land development, office furniture, real estate finance, defense electronics and robotics.
Ultimately, diversification proved as problematic of a strategy as it does for many companies that attempt to acquire their way to prosperity.
The company’s Westinghouse Credit unit was clobbered by risky commercial real estate and corporate buyout loans, prompting a $975 million charge for loan losses in 1990. Two years later, the credit unit’s losses topped $5.8 billion.
So Westinghouse did what all failed diversifiers do: it sold businesses and pursued plan B.
Westinghouse unloaded businesses wholesale and pursued a career in broadcasting, acquiring CBS in 1995 for $5.4 billion. The nuclear business was one of the last units to go. Engineering and construction giant Morrison Knudsen Corp. and British Nuclear Fuels Ltd. acquired Westinghouse for $1.1 billion in 1999.
Next up was Toshiba, whose $5.4 billion bid in 2006 trumped offers from GE and Mitsubishi Heavy Industries. That was more than double what British Nuclear Fuels, in the midst of its own restructuring, hoped to get for Westinghouse.
“Given the potential, we believe what we’ve paid is the correct price,” declared Atsutoshi Nishida, then-Toshiba’s president.
Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.
First Published: January 5, 2018, 2:36 p.m.
