Toshiba president and CEO Atsutoshi Nishida

Tokyo/London, Feb. 6 (Reuters): Japan’s Toshiba Corp has agreed to buy Westinghouse, the US power plant arm of British Nuclear Fuels, for $5.4 billion, three times what the target company initially hoped it would fetch.

Toshiba said in a statement on Monday that it expected to have several minority investors in Westinghouse but that it would retain a controlling stake of over 51 per cent.

The deal is expected to be completed in around six months.

Toshiba was selected last month as the preferred bidder for Westinghouse, a top supplier of nuclear plant technology which is also a leader in the Chinese nuclear power market, following multiple rounds of bidding over the past several months.

Nuclear power was out of favour after the Chernobyl disaster in 1986 and has been dogged by concerns about the financial and environmental cost of dealing with radioactive waste. But it has recently returned to the fore.

Concern over the security of power supplies and growing demand worldwide for energy has fuelled a surge in crude oil prices, prompting fuel-hungry countries such as China to expand investment in other energy sources including nuclear power.

Last month, a source said Toshiba had outbid its rivals, which included General Electric of the US and Japan’s Mitsubishi Heavy Industries Ltd.

Initial expectations were for Westinghouse to fetch about $1.8 billion, although a source familiar with the situation said last month the price would be around $5 billion.

The deal is expected to expand significantly the Japanese conglomerate’s potential customer base. Toshiba offers boiling water reactors (BWRs), while Westinghouse specialises in the more widely used pressurised water reactors (PWRs).

“PWR represents about 60 per cent of the global market, while BWR accounts for less than 30 per cent,” said Tomoko Murakami, a senior researcher at the Institute of Energy Economics, Japan.

“Moreover in China and the United States, where active construction of new reactors can be expected, PWR is set to remain the dominant technology.”

But the acquisition may strain Toshiba’s financial standing and cause the company, the world’s fourth-largest chipmaker and third-largest notebook computer maker, to spread its resources too thin, analysts said.

Responding to those concerns, a Toshiba executive said last week that Toshiba could easily cover its part of the acquisition with cash flow. He said Toshiba usually generates 300 billion yen ($2.5 billion) worth of free cash flow in a three-year period. But the comment failed to allay market concerns entirely.

“Its cash flow is in good condition this business year, but it will be tough in the next business year even without the Westinghouse deal, because capital spending on semiconductors will increase,” J.P. Morgan senior analyst Yoshiharu Izumi said.