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Failure to monitor Westinghouse brings Toshiba to the brink

Toshiba Corp. President Satoshi Tsunakawa leaves after a March 29, 2017 news conference in Tokyo about the Chapter 11 bankruptcy filing by its U.S. subsidiary Westinghouse Electric Co. (Mainichi)

In February 2006, then Toshiba Corp. President Atsutoshi Nishida declared to a London audience that his firm would become a world standard-setting nuclear reactor maker. Nishida was there to ink the contract that would make U.S. nuclear technology firm Westinghouse Electric Co. a Toshiba subsidiary, and at the ceremony Nishida looked and sounded ready to take on the world.

Toshiba paid some US$5.4 billion (about 640 billion yen) to acquire Westinghouse. Before the deal was closed, observers had seen past business partner Mitsubishi Heavy Industries Ltd. as Westinghouse's most likely suitor, and projected a purchase price in the 200 to 300 billion yen range. However, Toshiba swooped in and sealed the deal with what could be called a stratospheric bid.

That Nishida plunged ahead with such enthusiasm was down to the Ministry of Economy, Trade and Industry's push to make Japan a major nuclear technology exporter. Japanese reactors were supposed to be literally going places. Global warming countermeasures had emerged as a world issue, and nuclear power appeared to be a promising zero-emission alternative to fossil fuel-fed electricity generation. It was an atomic power "renaissance" in the making, bolstered in Japan by government and industry plans to make it a centerpiece of the country's infrastructure export drive.

When Toshiba bought Westinghouse, Nishida boasted that, by 2015, the firm would be contracted to build or already building 33 reactors around the world. Norio Sasaki, who succeeded Nishida in the president's chair in 2009, upped that goal to 39 reactors by fiscal 2015. Together with Westinghouse, Toshiba pulled in reactor orders in the United States and in emerging nations, and it appeared as though nuclear technology would become the firm's sturdiest and most essential business.

All that began to change in March 2011, when three reactor cores at the tsunami-crippled Fukushima No. 1 nuclear plant melted down, igniting the Fukushima nuclear crisis that continues its slow burn even today. Countries around the world moved swiftly to beef up nuclear safety regulations, and the "zero nuclear" movement gained tremendous public and political traction. It was obvious that the business climate for nuclear power was undergoing a seismic shift, but Toshiba did not adjust its strategy. According to one source with the company, "The firm was internally divided into little plots based on where workers got their start, in nuclear power, or in semiconductors, or whatever. All that they did was play the blame game."

Toshiba's executive ranks, apparently oblivious to Westinghouse's ailing business performance, did not realize the U.S. subsidiary was losing oceans of money until December last year. One power company executive told the Mainichi Shimbun they were shocked to hear a Westinghouse executive brag, "Running our company is really easy because Toshiba never gets involved. Toshiba is a cash dispenser."

In other words, though they paid a premium to acquire Westinghouse, Toshiba's past management teams then abandoned even supervising their new subsidiary, let alone managing it -- a tremendous blunder. And as a result, the entire company now finds itself bogged down and sinking in a vast swamp of red ink.

"That was a decision with very serious problems," said current Toshiba President Satoshi Tsunakawa when asked on March 29 about the Westinghouse acquisition, a bitter expression on his face.

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