Private Equity firms face a problem that runs into a multibillion-dollar deal with Toshiba Corp. They are not sure how to deal with the sensitive nuclear power unit of the Japanese conglomerate.
The Nuclear Power Unit: The Stumbling Block
Initially resistant to a buyout, Toshiba is now scouting for potential buyers in a dramatic change of stance. The biggest stumbling block to the Toshiba deal is the nuclear power unit, which according to the experts, is essential to the national interest of Japan.
According to Bloomberg News, PE giants such as CVC Capital Partners, Bain Capital, and KKR & Co are bidding for the company. One of the significant challenges the PE firms face is devising a plan to win the government’s approval. As per experts, there do not have easy choices.
Mitsuhito Taki, a legal expert in corporate affairs at Tokyo-based Yanagida & Partners, said that if a foreign PE fund were to buy it, it would be subjected to scrutiny under the foreign exchange and trade control law. Given the current profile of Toshiba, it would be difficult for a foreign fund to acquire it.
Bains did not comment, while the representatives of KKR and CVC declined to comment.
Currently, Toshiba’s nuclear unit is involved in decommissioning the wrecked Fukushima Dai-Ichi nuclear power plant making it difficult to transfer its ownership to a foreign firm in a buyout. Toshiba retrofits the existing nuclear plants to meet the safety standards and operations post-Fukushima.
One way out would be to enable a Japanese partner with the global PE firm to acquire a majority stock in Toshiba. This structure will make this more accessible and convenient for the government to approve the transaction and reduce the liability of the foreign firm.
However, with Toshiba having a market valuation of $ 18 billion, it would mean the Japanese partner has to shell out more than $ 9 billion. This amount will be tough for any Japanese company or fund to shell out if they might be interested in making a bid.
Another option for Toshiba is to keep the business and fulfill the requirements of the government, which according to Seki Obata, associate professor with Tokyo-based Keio Business School, will not happen probably.
Another way out would be to sell its nuclear unit before or immediately after the PE deal. However, finding a buyer will not be easy, according to an emeritus professor of Energy Policy at Takosha University.
Toshiba has lagged in its nuclear technology outside Japan. Its advanced modular reactors development has not been able to keep pace with overseas rivals, and its boiling water reactors are not considered for projects in the future.
The only realistic buyer, according to Obata, would be Hitachi Ltd which is also in the nuclear power business. However, it is doubtful as they are reviving their non-core business operations.
