Toshiba’s Westinghouse brings in bankruptcy lawyers; disclosure deadlines loom

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By Jessica DiNapoli and Makiko Yamazaki | NEW YORK/TOKYO

NEW YORK/TOKYO U.S. nuclear firm Westinghouse
Electric Co LLC has hired bankruptcy attorneys, in a sign that
owner Toshiba Corp is more seriously weighing a Chapter
11 filing as an option to help it rein in a multibillion dollar
financial maelstrom.

People familiar with the matter said the nuclear engineering
company had brought in law firm Weil Gotshal & Manges LLP as an
exploratory step, and had not yet taken a decision on a
bankruptcy filing.

The news comes as the Japanese conglomerate faces huge
pressure to meet a Tuesday deadline to publish audited earnings,
postponed a month ago so that it could probe potential problems
at Westinghouse further.

It is also pushing forward with the sale of most or even all
of its prized flash memory chip business, as it seeks to plug
not only an upcoming $6.3 billion writedown for Westinghouse but
also to create a buffer against future financial problems.

Toshiba said it was not aware of any intention for
Westinghouse to file for Chapter 11 bankruptcy.

Sources familiar with the company have said, however, it is
one of several options being considered as it struggles to limit
losses in the United States where it is facing cost overruns at
two projects. It has also hired a Japanese law firm to help
estimate the impact of a U.S. bankruptcy for the broader group,
those sources said.

Japanese Trade Minister Hiroshige Seko said on Wednesday
that a Chapter 11 filing would not necessarily be a negative
step and that Westinghouse was one topic that he may discuss
with U.S. officials when he visits in the near future.

“If the U.S. side raises the issue, it will be necessary to
discuss it,” he told a parliamentary committee.

One complication may be financing guarantees given by the
U.S. government to help fund the construction of reactors at the
Vogtle plant in Georgia, one of the two projects at the core of
Westinghouse’s problems.

According to a 2014 statement on the U.S. Department of
Energy Website, the loan guarantees totalled $8.3 billion.

CRUNCH WEEK NEXT WEEK

The most immediate challenge for newly appointed Chief
Executive Satoshi Tsunakawa – who comes from the healthcare side
of Toshiba’s business and has no direct nuclear experience – is
to get third-quarter earnings over the line.

One source with direct knowledge of the matter said the
likelihood of Toshiba meeting its March 14 deadline was ‘fifty-fifty’ as Westinghouse auditors and lawyers were fussing
over details. If it fails to meet that deadline it has until
March 27 to file or it could face a delisting.

Toshiba’s shares slid to end down 7 percent, giving it a market value of just $7.5 billion, hurt both by investor concern
it may not make the deadline and Westinghouse’s hiring of
bankruptcy lawyers.

The TVs-to-construction conglomerate must also submit next
week a report to the Tokyo Stock Exchange on its internal
controls in the wake of its latest financial woes as well as a
separate 2015 accounting scandal. That could eventually also
lead to a delisting if the bourse finds Toshiba’s efforts
unsatisfactory.

Even with all those items on its plate, it needs to proceed
with the sale of much of its flash memory chip unit – a business
it values at least 1.5 trillion yen ($13.1 billion), with bids
due at the end of the month.

Toshiba has sent invitation letters to around 10 potential
bidders, a source said.

Taiwan’s Foxconn, the world’s largest contract
electronics maker, is so far the only suitor to acknowledge
publicly its plans to bid. SK Hynix Inc has said it
is considering a bid.

Sources have said other potential bidders include Taiwan’s
TSMC, the world’s largest contract chip manufacturer,
data storage firm Western Digital Corp which operates a
Japanese chip plant with Toshiba, rival Micron Technology Inc
, as well as financial investors such as Bain Capital.

While Foxconn has said it is very confident it can buy into
Toshiba, sources with direct knowledge of the deal said it is
not a favoured bidder due to Japanese government’s opposition to
its close ties with China.

Desperate for cash, Toshiba is also hiving off peripheral
assets, from a $2 billion smart meter unit to minority stakes in
smaller affiliates, like molding machine maker Toshiba Machine. ($1 = 114.4800 yen) (Additional reporting by Tom Hals in Wilmington, Delaware,
Kentaro Hamada in Tokyo and JR Wu in Taipei)



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