Brookfield to Buy Westinghouse's Global Nuclear Business

(Bloomberg) -- The future of Westinghouse Electric Co.’s global nuclear business now rests in the hands of Brookfield Asset Management Inc.’s private equity arm.

Canada’s biggest alternative asset manager agreed to buy what remains of the former nuclear energy powerhouse’s U.S. business, as well as its non-bankrupt European business, for $4.6 billion. It’s the first foray into the nuclear sector for Brookfield Business Partners LP, a publicly traded unit. 

The deal marks a positive turn in a long saga of financial woes stemming from U.S. reactor projects that dragged Westinghouse into bankruptcy, ensnared its parent, Toshiba Corp., and also battered U.S. utilities that had taken on their construction. Toshiba rose as much as 3.1 percent to 333 yen at 9:11 a.m. in Tokyo.

“Brookfield’s acquisition of Westinghouse reaffirms our position as the leader of the global nuclear industry,” Westinghouse Chief Executive Officer Jose Emeterio Gutierrez said in a Thursday statement. He said the deal will transform the company into a stronger, more streamlined business.

Brookfield has a plan to reorganize its bankrupt U.S. assets as well, according to a person with knowledge of the sale. The deal, which still needs court and regulatory approval, was reached last night, said the person, speaking on condition of anonymity because some details are not yet public.

Equity, Debt

The transaction is expected to be funded with approximately $1 billion of equity, approximately $3 billion of long-term debt financing, and the balance by the assumption of certain pension, environmental and other operating obligations, according to a statement from Brookfield. Brookfield Business Partners said it will fund roughly half of the equity on closing using existing funds and may syndicate some of the investment to other institutional investors at a later date.

Blackstone Group LP and Apollo Global Management LLC had teamed up on a competing bid for the company, and Cerberus Capital Management LP had also submitted a bid, according to a different person with knowledge of the matter, who also asked not be identified because the bidding was private. The firms had been reported for months to be circling the assets, and Apollo had also faced competition to extend an operating loan to the company at the outset of its bankruptcy.

Representatives for Blackstone and Apollo weren’t immediately available for comment. Cerberus declined to comment.

Peter Grauer, chairman of Bloomberg LP, is a non-executive director at Blackstone.

Innovation Reputation

“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,” Cyrus Madon, CEO of Brookfield Business Partners, said in the statement.

Since filing for bankruptcy in March, Westinghouse said it planned to get out of the business of building new reactors and focus on servicing them, including decommissioning work. Since then, reports have surfaced that the Trump administration is encouraging Saudi Arabia to consider bids by Westinghouse and other U.S. companies to build reactors -- a politically controversial bid considering previous U.S. agreements prohibited the enrichment of uranium.

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.

Biggest Deal

The deal is Brookfield Business Partners’ biggest so far, and is expected to close in the third quarter of 2018. Brookfield also agreed to buy significant assets in the wind and solar energy industry that had been ensnared in SunEdison Inc.’s bankruptcy.

The deal includes Westinghouse’s business in Europe, the Middle East and Africa, which had remained outside of bankruptcy protection, while at the same time drawing on some of the financing that the bankrupt units obtained from Apollo.

There are no changes to the four AP1000s under construction in China as a result of the purchase, according to Sarah Cassella, a Westinghouse spokeswoman. The company has seen China and India as markets for AP1000 exports.

Scana Deal

Westinghouse had backed out of the two U.S. projects after it filed for Chapter 11, setting off a chain of events for the utilities involved. In South Carolina, owner Scana Corp. decided to abandon the new reactors, sparking a political backlash that prompted federal and state investigations. Dominion Energy Inc. agreed to buy Scana earlier this week for $7.9 billion. 

In Georgia, Southern Co. agreed to take over its nuclear project from Westinghouse and won approval from state regulators last month to finish two new units despite total costs that soared to about $25 billion.

Designed to be safer than older models, the Westinghouse AP1000 design was supposed to revive an industry plagued by the accident at Three Mile Island in 1979. Instead, delays and overruns led to troubles that left Westinghouse’s former parent, Toshiba Corp., fighting for survival last year after writing down the value of the unit by billions.

Toshiba had bought the unit for $5.4 billion in 2006, before a wave of industry troubles including Japan’s 2011 Fukushima meltdown and a flood of cheap natural gas in the U.S.

--With assistance from Mark Chediak Erik Schatzker Tina Davis and Stephen Stapczynski

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net, Scott Deveau in New York at sdeveau2@bloomberg.net.

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Kenneth Pringle, Steve Dickson

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