Brookfield Business Partners to Acquire Westinghouse for $4.6 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Canadian investment firm Brookfield Business Partners Limited Partnership (NYSE:BBU) (Hamilton, Bermuda) has entered into an agreement to purchase Westinghouse Electric Company LLC (Cranberry Township, Pennsylvania), the bankrupt nuclear services firm owned by Toshiba Corporation (TSE:6502) (Tokyo, Japan), for $4.6 billion.

The firm, a subsidiary of Brookfield Asset Management Incorporated (NYSE:BAM) (Toronto, Canada), will fund the purchase through $1 billion in equity and $3 billion in long-term debt financing. The remaining balance would be covered through the assumption of certain environmental, operating and pension obligations.

Brookfield Chief Executive Officer (CEO)Cyrus Madon said his company's acquisition of Westinghouse will enhance the company's position as a leader in infrastructure services in the global power generation industry.

"Westinghouse is a high-quality business that has established itself as a leader in its field, with a long-term customer base and a reputation for innovation," Madon said of Brookfield's investment in nuclear technology.

The purchase of Westinghouse is Brookfield's first investment in the nuclear industry. Pending bankruptcy court approval, the transaction is expected to close in this year's third quarter.

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Westinghouse President and CEO José Emeterio Gutiérrez said the acquisition signified his company's global leadership in nuclear technology.

"Our strategic restructuring process is creating a stronger, stable and more streamlined global Westinghouse business, for the benefit of our customers and employees," Gutiérrez said.

Construction of two new units at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia--the only active new nuclear-construction project in the U.S.--was complicated last year when Westinghouse declared Chapter 11 bankruptcy, citing massive cost overruns in the construction of four nuclear power reactors in the U.S. Westinghouse was providing two AP1000 reactors for the Vogtle project. See Industrial Info's April 25, 2017, article - Westinghouse Chapter 11 Filing Roils Labor Markets in Georgia and Beyond, and September 19, 2017, article - Westinghouse to Exit Bankruptcy 'Very, Very Quickly.

The two units are about two-thirds complete. Once finished, they will add about 2,234 megawatts (MW) of generating capacity. When the Vogtle plant expansion originally was announced in 2001, the cost was estimated at around $7.5 billion, and the units were scheduled to be operating by mid-2013, according to Industrial Info's Global Marketing Intelligence (GMI) platform. Costs have spiraled since then, to a current estimate of $25 billion, including financing costs.

Westinghouse continues to provide technology support for Vogtle after Georgia Power Company (NASDAQ:GPJA) (Atlanta, Georgia) hired Southern Nuclear Company (Birmingham, Alabama), a subsidiary of Southern Company (NYSE:SO) (Birmingham), last July to take over construction management at the facility. Georgia Power currently expects Unit 3 to be operational by November 2021 and Unit 4 to go online in November 2022. For more information, see Industrial Info's project report and December, 22, 2017, article - Georgia Power Authorized to Complete Construction of Vogtle Units 3 and 4.

Westinghouse's financial woes also resulted in an August 2017 decision by the owners of the Virgil C. Summer nuclear generating plants 2 and 3 near Jenkinsville, South Carolina--Santee Cooper (Moncks Corner, South Carolina) and SCANA Corporation (NYSE:SCG) (Cayce, South Carolina), to permanently halt construction at the complex. Earlier this month, Scana entered into a $14.6 billion merger agreement with Dominion Energy Company (NYSE:D) (Richmond, Virginia). According to a Dominion statement, the merger will help offset past and future costs related to the cancelled project. Pending approval by the South Carolina's utility regulators, the merger would also help write off all related customer costs over 20 years, instead of the previously proposed 50-60 years. Dominion's top executives briefed regulators on January 11 about its proposed takeover of SCANA.

Westinghouse's bankruptcy is a huge endeavor, with investigations still pending and claims still being filed, including a $4.7 million claim the Nuclear Regulatory Commission (Rockville, Maryland) filed last November. The agency disclosed that it is currently conducting 13 investigations into Westinghouse's conduct before the bankruptcy, with 11 of them looking into whether Westinghouse penalized employees for "raising nuclear safety concerns."

Construction of new nuclear plants globally dropped substantially following the Fukushima Daiichi nuclear disaster in Japan in March 2011, but a nuclear "renaissance" may be imminent, according to a September 2015 report by the World Nuclear Association (WNA) (London, United Kingdom). Global population growth in combination with industrial development will lead to a doubling of electricity consumption from 2007 levels by 2030. Increasing energy demand, security of supply, climate change, economics and grid stability are forecast are among the drivers for nuclear expansion worldwide. Industrial Info is currently tracking more than $87 billion in active nuclear-related projects around the globe.

Click on the image at right for a graph showing the amount of nuclear capacity expected to go online in the next seven years.

There are currently 440 nuclear power reactors operating in 30 countries, plus Taiwan, with a combined capacity of more than 390 gigawatts. In 2015, those power reactors provided 2.57 trillion kilowatt-hours--roughly 11% of the world's electricity. At least 50 reactors are under construction in 13 countries, notably China, India, Russia and the United Arab Emirates. Of the 50, at least six--including the Vogtle plants--are deploying the Westinghouse AP1000 reactor design.

Most reactors on order or are planned in the Asian region with rapidly growing economies and rising electricity demand. In all, about 160 power reactors with a total gross capacity of some 160,000 MW are on order or planned in Asia, and another 300 more are proposed.

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