Toshiba Eyes Areva Power Unit

By TOR CHING LI
TOKYO -- Reflecting a shift in focus from the cyclical computer chip business to the more stable and growing energy market, Toshiba Corp. plans to further its nuclear power ambitions with a ¥400 billion to ¥500 billion ($4.3 billion to $5.38 billion) bid for a unit of French group Areva, a person familiar with the deal said.
The Japanese electronics company is likely to bid for Areva's electricity transmission and distribution, or T&D, operations during the first round of an auction process to be held this month, the person said.
French state-controlled Areva is putting the 30,000 employee-strong unit up for sale to help finance the rest of its nuclear operations. The cash-strapped company has previously said it aims to select a buyer for its T&D unit by the end of the year. Credit Suisse is advising Areva on the sale.
The T&D unit posted revenue of €5.06 billion ($3.54 billion) and operating profit of €560 million in the fiscal year ended March 2009.
Toshiba, which is focusing on its power-generation equipment business as a growth area, acquired U.S. nuclear plant Westinghouse Electric Co. for around ¥500 billion in 2006.
Acquiring Areva's power operations would make the Japanese conglomerate's nuclear power and infrastructure division its biggest revenue generator and put the unit on track to hit its target of generating ¥3 trillion in sales by 2011.
For the fiscal year ended March, Toshiba reported its largest-ever net loss of ¥343.6 billion, weighed down by its chip operations. Toshiba, the world's second-largest producer of NAND flash memory chips, is in the midst of a major overhaul of its chip operations. As part of this process, the company said Monday it is considering outsourcing part of the production of advanced system chips used in digital home electronics to an overseas foundry.
Toshiba shares rose 3.4% to ¥482 Monday on news of its outsourcing and Areva bid plans.
Heavyweights in the nuclear industry have been quick to zoom in on Areva for buying opportunities.
Mitsubishi Heavy Industries, which lost out to Toshiba in a tussle for Westinghouse Electric, said it will consider taking a stake in Areva -- with which it has operational tie-ups -- if the French government offers it an opportunity to do so.
Some analysts are skeptical of Toshiba's ability to fund the acquisition of Areva's T&D unit.
A Nomura Securities analyst report said Toshiba isn't in a position to fund any acquisition without further capital raising. Toshiba had just raised ¥500 billion in fresh equity in June to help boost its balance sheet, which was dogged by write-downs and losses amid falling consumer demand.
The company had approximately $3 billion in cash at the end of June and filed a shelf registration with Japan's Finance Ministry in July to issue around $2 billion in domestic corporate bonds over the next two years.
French industrial peers Alstom SA and Schneider Electric SA said in July that they are also considering making a joint bid for the unit, with Alstom considering the transmission part and Schneider looking to take the distribution operations.
A spokeswoman for Areva declined to comment but said a meeting of Areva's supervisory board is due to occur Tuesday.
Write to Tor Ching Li at chingli.tor@dowjones.com