Toshiba, Japan's biggest maker of nuclear reactors, fell to the lowest in more than two years in Tokyo trading after the Wall Street Journal said the company may buy Shaw Group's stake in Westinghouse Electric Co.
The shares slumped 5.1 per cent to close at 297 yen (Dh14), the lowest since April 2, 2009. The Nikkei 225 Stock Average declined 2.2 per cent.
Toshiba, which already owns 77 per cent of Westinghouse, is in talks to buy out Shaw Group's 20 per cent holding in the Pittsburgh-based company, the WSJ reported, citing people it didn't identify.
Talks are still underway and a deal may have be announced as early as yesterday, according to the newspaper. Keisuke Ohmori, a Toshiba spokesman, declined to comment on the report.
"Assuming the news is true, the market is estimating that Toshiba may need to raise about 80 billion yen ($1.05 billion) worth of funds for the buyout," Ikuo Matsuhashi, a managing director in Goldman Sachs Group, wrote yesterday. "People might interpret this as Shaw Group exercising a put option because they're downgrading their mid-term outlook for nuclear power business."
Toshiba acquired its Westinghouse stake for $4.16 billion in October 2006. Shaw Group, a Baton Rouge, Louisiana-based engineering and construction business, paid $1.08 billion for its share, raising the money though a private placement. Japan's IHI Corp bought the remaining three per cent.
IHI is currently not in discussions with Toshiba on its Westinghouse holding, Keiichi Sakamoto, a spokesman at the Tokyo-based heavy machinery maker, said. IHI was formerly known as Ishikawajima-Harima Industries.
Shaw Group's stake in Westinghouse is held by its Nuclear Energy Holdings unit, which partly financed the investment by issuing limited recourse yen-denominated bonds, according to a description in the company's June 28 earnings statement.
To mitigate the currency risk, the unit, "simultaneously entered into a yen-denominated put option agreement with Toshiba, which provides NEH the option to sell all or part of its equity interest to Toshiba and receive a predetermined yen-denominated price for the shares," Shaw Group said, without giving the price.
Shaw Group, which posted a $70 million loss in the three months ended May, including contributions from Westinghouse, said its earnings often reflect swings in the dollar's value against the yen.
Toshiba has slumped 41 per cent since the record earthquake and tsunami that struck Japan on March 11 wrecked Tokyo Electric Power's Fukushima Dai-Ichi plant.
The company helped build four of the six reactors at the site. Shaw Group has declined 44 per cent in New York trading in the same period.