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Toshiba Plans $5-Billion-Plus Bid for Areva Unit: Sources

Reuters
Friday, 4 Sep 2009 | 12:09 PM ET

Japan's Toshiba Corp. plans to bid for French nuclear group Areva's power transmission and distribution unit, four sources with direct knowledge of the situation said, in a deal that could top $5 billion.

Toshiba, which runs a far-flung electronics conglomerate, is banking on power generation for growth as it reins in investment in its recession-hit computer chip business.

"If it manages to buy it for the right price, it would be a positive development," Deutsche Securities analyst Takeo Miyamoto said.

But the health of Toshiba's balance sheet is uncertain following a $5 billion capital hike in May, and its presence as the first foreign suitor for the up-for-sale business might sit uneasily with French government efforts to promote national industrial champions.

Areva has put its transmission and distribution (T&D) business on the block and is seeking to sell 15 percent of the group's capital to fuel its nuclear expansion plans. The government will play a major role in both decision for the 91-percent state-owned firm, already a global leader in nuclear technology.

The political argument against a sale of T&D to Toshiba would be weakened if reported plans for an influx of Chinese money into the group prove correct. A Chinese sovereign fund is in talks to take a stake in the Areva, French daily Les Echos reported on Thursday.

A French industry ministry spokesman did not immediately return calls for comment on how the state would view a foreign buyer for Areva's T&D business.

Toshiba's shares fell 2.3 percent after news that it might bid broke.

Bid Clock Ticking Down

First-round bidding for Areva's transmission and distribution (T&D) unit -- No.3 in its field after ABB and Siemens -- is expected to begin in mid-September.

Declared bidders so far include French engineering groups Alstom and Schneider Electric, who are planning a joint offer. Axa Private Equity is considering making an offer with financial or industrial partners.

French Economy Minister Christine Lagarde said this week she hoped Areva would reach a decision on the possible sale of the unit by the end of 2009.

The business brought in about 38 percent of Areva's 13.2 billion euros in revenue last year.

One Japanese source said the deal could be worth more than 500 billion yen ($5.4 billion), while another said the unit could fetch as much as 700 billion yen.

Five analysts polled by Reuters put an average valuation of 3.7 billion euros ($5.28 billion) on Areva T&D, though others put the value at closer to 5 billion euros.

Toshiba Shift

Patrick Kron, CEO of Alstom, which plans to submit a joint bid with Schneider, declined to say on Thursday how he saw the valuation of T&D.

"It is very early in the process," he told Reuters on the sidelines of a business conference outside Paris. "We'll see where we end up as the bidding advances."

For Toshiba, the deal would advance its ambition to become a one-stop full-service nuclear power business, spanning uranium procurement in Kazakhstan to plant maintenance.

Toshiba sees the power business as a source of stable, long-term growth. Its traditional semiconductor business is still reeling from a prolonged slump and is more volatile.

Toshiba President Norio Sasaki, who took the helm in June and led the firm's acquisition of U.S. nuclear firm Westinghouse, has said that profit from power and infrastructure will be double the level from its devices business in three years.

"Local players dominate the transmission and distribution market in Europe, and Toshiba's presence is limited," Deutsche Securities's Miyamoto said. "It is good that Toshiba is considering the opportunity."

But the Japanese firm is still heavily in debt from the $5 billion acquisition of Westinghouse in 2006.

"Toshiba needs to carry out aggressive restructuring before tackling M&As," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. "So far there's no clear sign that Toshiba is cutting off unnecessary operations."

Toshiba spokesman Keisuke Ohmori declined to comment on whether Toshiba was making an offer. But he said: "This deal has the potential to affect the power balance in the sector, and we are watching how it unfolds with interest."

A spokesman for Areva also declined to comment.

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