Toshiba Corp., reeling from an impending multibillion-dollar writedown in its Westinghouse Electric unit, has been battered to the point where a possible bankruptcy of the nuclear equipment business is being cheered by investors.
Shares in the electronics conglomerate rose 14 percent in Tokyo, the most in a month, after Toshiba said Westinghouse’s board will decide whether to file for bankruptcy, suggesting that it’s one of the options under consideration. Reuters reported earlier that Westinghouse’s utility customers have hired advisers in preparation for its possible bankruptcy and Nikkei reported that two banks, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., urged Westinghouse to file this month.
Toshiba has been grappling with construction delays at Westinghouse projects that could result in a writedown of 712.5 billion yen ($6.2 billion), though it hasn’t been able to get auditors to sign off on the final figures. The company said earlier this month that it’s reevaluating Westinghouse’s position within the group and it may deconsolidate the subsidiary by selling a controlling equity stake.
“Westinghouse’s bankruptcy is really the only way for Toshiba to limit the risks of further losses in the business,” said Kazunori Ito, an analyst at Morningstar Investment Services. “If there is a reason for the shares to be up today, it may be because some believe that the Chapter 11 process is coming along.”
Westinghouse also appears to be already assembling a team of lawyers and advisers to help with the restructuring. The company has hired PJT Partners Inc., people with knowledge of the matter have said. Lisa Donahue of AP Services, LLC, an affiliate of AlixPartners, is leading the Pittsburgh-based company’s operational restructuring efforts.
Westinghouse’s customers, the utilities Scana Corp. and Southern Co., have hired advisers in preparation for its possible bankruptcy, Reuters reported, citing unidentified people familiar with the matter. Westinghouse has also brought in bankruptcy attorneys from Weil Gotshal & Manges LLP, according to Reuters.
“Whether or not Westinghouse files for Chapter 11 is ultimately a decision for its board, and must take into account the various interests of all of its stakeholders, including Toshiba and its creditors. It is not appropriate for Toshiba to comment prematurely,” the Tokyo-based company said in an emailed statement.
Scana and Southern could end up dealing with billions of dollars in additional cost overruns from the power plants they hired Westinghouse to build, according to Morgan Stanley. Utility owner Scana faces as much as $5.2 billion in higher costs that could drag its shares down 5 percent, Morgan Stanley analysts including Stephen Byrd said in a research note Wednesday. Cost overruns for utility owner Southern could reach $3.3 billion.
“We will continue to hold Westinghouse and Toshiba accountable for their responsibilities under our agreement,” Jacob Hawkins, a Southern spokesman, said in an email. “We are monitoring the situation and prepared for any potential outcome.”
Scana is “preparing for a variety of possible outcomes,” Rhonda O’Banion, a spokeswoman for the Cayce, South Carolina-based utility owner, said by email. Sarah Cassella, a Westinghouse spokeswoman, declined to comment.
Toshiba has delayed its earnings announcement twice, saying it needed more time to examine reports of “inappropriate pressure” internally to push through the acquisition of a U.S. construction firm specializing in building atomic plants. Toshiba now has until April 11 to report earnings, though it can request another extension.
“It’s not at all clear what the loss would be in case of a Westinghouse bankruptcy,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co. “The shares are very sensitive to newsflow and the prices is driven largely by individual investors.”
In order to make up for a potentially large writedown, Toshiba has put its prized memory chip business up for sale, with bids due by the end of this month. Western Digital Corp., SK Hynix Inc., Foxconn Technology Group, Micron Technology Inc. and Kingston Technology Co. are among those interested, people with knowledge of the matter have said.
Chief Cabinet Secretary Yoshihide Suga played down the possibility of a sale to a foreign entity on Thursday, saying that the Japanese government is closely watching the process because the technology is important.