CALGARY – Brookfield Asset Management’s private equity unit struck its biggest-ever deal Thursday, buying up bankrupt nuclear technology powerhouse Westinghouse Electric Co. LLC for US$4.6 billion, in a bold move that appears to be welcomed by investors.
Pittsburgh-based Westinghouse, owned by Japan’s Toshiba Corp., sought bankruptcy protection last March amid cost overruns at four new nuclear reactors under construction in Georgia and South Carolina – a development that hurt the utility companies involved in its construction and forced the parent company to record billions of dollars in write downs. Toshiba bought Westinghouse for $5.4 billion in 2006.
Amid the cost overruns, returns for nuclear power generation in the U.S. have also been under extreme pressure from abundant low-cost natural gas production, which left utility companies powered by nuclear energy at a huge disadvantage against the cheaper, gas-fired power generation companies.
Despite these challenges, Brookfield Business Partners is betting big on the nuclear business.
“Even though they don’t have a history in nuclear it really does feel like a fit,” New York city-based Keefe, Bruyette and Woods analyst Ann Dai said.
Another Brookfield affiliate, Brookfield Renewable Partners LP, recently closed a similar transaction in its purchase of bankrupt SunEdison’s TerraForm Power solar business for US$1.4 billion, Dai said.
Dai said Brookfield frequently swoops in to buy up assets or companies “at a point where there are not a lot of obvious buyers” with plans to transform the assets over a longer timeframe.
Brookfield Business Partners’ shares rose more than 4 per cent Thursday following the deal announcement to $45.10 on the Toronto Stock Exchange. Parent company Brookfield Asset Management, which was up a more subdued 0.7 per cent, operates the industrial division of its private equity group via BBP.
Blackstone Group LP and Apollo Global Management LLC had put together a competing bid for Westinghouse Electric and as did Cerebus Capital Management LP, according to Bloomberg.
Ultimately, the bid led by Brookfield succeeded, and the company intends to fund the purchase through $1 billion in equity and $3 billion of long-term debt.
“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,” Brookfield Business Partners CEO Cyrus Madon said in a release.
Madon added that Brookfield would use its “reputation as a long-term owner” to help build Westinghouse’s “position as a global infrastructure services provider to the power generation industry.”
Westinghouse Electric designs and services large and small nuclear reactors for power producers in the U.S., where nuclear power accounts for roughly 20 per cent of all electricity generation, which is the company’s main growth market.
The deal won’t include what had been the company’s most prized projects — plans to build its AP1000 reactors for U.S. utilities in South Carolina and Georgia. Those projects, plagued by delays and cost overruns, eventually led to its downfall, and Westinghouse has used the Chapter 11 process to distance itself from any obligations to them.
Since filing for bankruptcy, Westinghouse said it planned to get out of the business of building new reactors and focus on servicing them, including decommissioning work.
The deal includes Westinghouse’s business in Europe, the Middle East and Africa, which had remained outside of bankruptcy protection.
“Everyone expects very rapid continued growth in electricity demand around the world, not in the mature economies, but in Asia, Africa and in some parts of Europe,” Nuclear Energy Institute spokesperson Matthew Wald said.
As a result, Wald said, Westinghouse Electric’s business of exporting nuclear reactors and components to power producers in places like China and India would be a source of growth for the company. He said that Saudi Arabia is currently looking to add nuclear power to meet its rising demand for electricity.
“Brookfield’s acquisition of Westinghouse reaffirms our position as the leader of the global nuclear industry,” Westinghouse president and CEO Jose Emeterio Gutierrez said in a release announcing the deal, which is expected to close in the third quarter of this year.
Financial Post with files from Bloomberg
gmorgan@nationalpost.com
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