The encyclopedia · Strategy & Leadership · Strategic decision · 2017
Toshiba paid $5.4B for Westinghouse — the nuclear bet cost it $9B
Toshiba bought Westinghouse to lead the nuclear renaissance. Construction overruns at US plants cost $9B+, and Toshiba nearly went bankrupt.
Toshiba · Westinghouse Electric · 2017
What happened
In 2006, Toshiba acquired Westinghouse Electric, the American nuclear power company, for $5.4 billion. The bet was that a global nuclear renaissance was coming, and Toshiba would be at the forefront with Westinghouse's AP1000 reactor design.
But the nuclear renaissance never came. After the 2011 Fukushima disaster, public opposition to nuclear power intensified globally. Meanwhile, Westinghouse's AP1000 construction projects in the US (Vogtle in Georgia and VC Summer in South Carolina) suffered massive cost overruns and delays, with fixed-price contracts exposing Westinghouse to billions in losses.
In 2017, Toshiba disclosed that Westinghouse's construction losses would cost the company over $9 billion. Westinghouse filed for bankruptcy, and Toshiba was forced to sell its prized memory chip business to raise cash. The company narrowly avoided delisting. The case illustrated the danger of a fixed-price contract on a first-of-a-kind construction project, and of betting on a policy-dependent market.
Why it happened
- Toshiba bet $5.4B on a nuclear renaissance that was derailed by Fukushima and shifting energy policy.
- Westinghouse's AP1000 projects suffered massive cost overruns under fixed-price contracts.
- First-of-a-kind nuclear construction proved far more complex and expensive than projected.
- The $9B+ loss forced Toshiba to sell its memory chip business and nearly caused the company's collapse.
The lesson
A fixed-price contract on a first-of-a-kind project is a bet that nothing will go wrong. On a nuclear plant, something always does.
Aftermath
Westinghouse filed for bankruptcy in 2017 and was later restructured. Toshiba sold its memory chip business (now Kioxia) and refocused on infrastructure. The Vogtle plant was eventually completed years late and billions over budget.
Sources
- Westinghouse Electric Company — Wikipedia (Toshiba acquisition, bankruptcy)
- CNBC, 29 March 2017 — Huge nuclear cost overruns push Toshiba's Westinghouse into bankruptcy (US AP1000 project overruns; Westinghouse Chapter 11 filing)
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