Japanese technology conglomerate Toshiba has spent a decade and billions of dollars building itself into one of the largest players in the global nuclear power industry by buying up rivals.
The result has been a financial quagmire — one that is about to deepen.
Toshiba warned Tuesday that it might need to write off “several billion U.S. dollars” because of its purchase of a U.S. construction firm that specializes in nuclear power projects. In a statement, Toshiba said it was still figuring out the size of the write-off, which was related to its acquisition a year ago of CB&I Stone & Webster.
The scale of the potential write-off was notable given that Toshiba’s nuclear subsidiary in the United States, Westinghouse, bought the business for $229 million. Toshiba’s share price dropped 12 percent on Tuesday.
Toshiba and CB&I Stone & Webster’s former parent, engineering group Chicago Bridge & Iron Co., have been arguing over the business’s true value ever since the deal closed.
Projects that CB&I Stone & Webster is working on have been hit by delays and cost overruns. In dueling legal claims, Westinghouse and Chicago Bridge & Iron have been disputing how expensive the delays will be and which company should take the financial hit.
The purchase was a gamble from the start: The Toshiba subsidiary was paying relatively little to buy the business, but its ultimate costs could end up being many times higher if things went badly. That outcome now looks likely.
“Westinghouse has found that the cost to complete the U.S. projects will far surpass the original estimates, mainly due to increases in key project parameters, resulting in far lower asset value than originally determined,” Toshiba said on Tuesday.
Toshiba’s nuclear ambitions have hammered its bottom line. Prospects for companies central to its expanding empire have soured, their revenue failing to cover what Toshiba paid to buy them.
Toshiba bought Westinghouse in 2006 for $5.4 billion in a deal that proved to be expensive and ill-timed. Toshiba took a $2.3 billion write-down on the acquisition last year. That followed embarrassing revelations about its accounting practices, in which it acknowledged overstating revenue at several divisions, including nuclear power.
Even at the time of the Westinghouse purchase, many analysts said Toshiba was paying too much for the company. Then came the global financial crisis and an accelerating revolution in shale oil and gas extraction, which reduced the cost of more traditional alternatives to nuclear power. The nuclear meltdowns in Fukushima, Japan, in 2011 compounded Toshiba’s problems by crippling the atomic power industry in Japan, contributing to delays and downsizing elsewhere.
Despite such problems, Toshiba sees nuclear power as a better bet than other businesses like consumer electronics, in which Japanese companies have lost competitiveness to rivals in China. Toshiba’s chief executive, Satoshi Tsunakawa, reaffirmed the company’s commitment to nuclear power this year after he was appointed in a management shake-up following the accounting scandal.
“It’s achievable,” Tsunakawa told reporters in June, referring to the company’s official goal of building 45 nuclear reactors around the world by fiscal 2030. Industry analysts have said that the target is a stretch.
In the United States, Westinghouse has been working with CB&I Stone & Webster on two projects to expand existing nuclear power stations by building new reactors. The projects, at the V.C. Summer station in South Carolina and the Alvin W. Vogtle plant in Georgia, are several years behind schedule and billions of dollars over budget.
The write-off that Toshiba warned about on Tuesday hinges on the portion of CB&I Stone & Webster’s value that accountants call good will — essentially, the premium that an acquirer pays over the value of a company’s tangible assets, like factories and equipment.
Toshiba said it initially estimated that premium at $87 million. But after a review, it said, it now believed the premium was far larger — so large, in fact, that CB&I Stone & Webster was in effect worth less than nothing when Toshiba bought it. It was possible, Toshiba said, that “all or part” of the difference would have to be deducted from its own financial accounts.