NEW YORK (Reuters Breakingviews) - Toshiba still doesn’t have a grip on its sprawl. The $14 billion technology-to-construction conglomerate may take another multibillion-dollar writedown at its nuclear-power business. That will further weaken the indebted Japanese group’s balance sheet – and it reignites fears about management’s control.
No wonder Toshiba’s stock took a 12 percent dive on Tuesday. An accounting scandal last year had been receding somewhat, a new chief executive – Satoshi Tsunakawa – took over in May, and the company’s Westinghouse Electric nuclear-construction unit reset its books with a $2.3 billion writedown. Things seemed to be settling down.
Now another hit to this year’s results of at least a comparable size is on the cards, according to Toshiba. The problem is at Stone & Webster, the business Westinghouse bought from Chicago Bridge & Iron, it’s U.S.-based former owner, a year ago. As often happens in the nuclear industry, construction costs on plants in South Carolina and Georgia are running far above expectations. Though the purchase price was essentially nothing – it involved some $229 million in payments linked to future achievements – that may in hindsight have been “several billion dollars” too much.
One problem is that the writedown, which the company said still needs to be quantified more exactly, could come uncomfortably close to wiping out Toshiba’s shareholders’ equity of around $3 billion, perhaps forcing the company to accelerate divestitures, cut costs further and raise more capital.
Arguably the bigger issue, however, is credibility. Tsunakawa was beginning to regain investors’ trust, with Toshiba’s stock closing on Monday around 60 percent higher than at the end of June. Surprising them with more bad news – about something which should have been on the radar at Westinghouse anyway, especially after the previous problems there – sets his efforts back.
It also raises questions about Toshiba’s sweep of operations. Analysts have been sounding more optimistic about its big flash-memory business. But nuclear construction has no relationship to silicon chips. Reactors may yet prove indispensable as part of the shift away from fossil fuels, but sharp falls in wind and solar-power costs mean the economics aren’t as potent as they once were. The latest fallout makes hard decisions more urgent.
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