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By: Tim Kelly
Forbes
(December 11, 2006)
Clinching the acquisition of nuclear reactor maker Westinghouse last month with an okay by U.S. regulators, Toshiba Chief Executive Atsutoshi Nishida enjoyed some expensive satisfaction. Three times he'd had to raise his bid, finally to $4.2 billion for 77% of the unit of British Nuclear Fuels.
"To be frank, the final price was a little bit more than we expected," admits Nishida, choosing his words carefully. Some brokerage analysts of the Japanese industrial giant were quicker and less measured in their appraisals.
Merrill Lynch and Goldman Sachs both cut their ratings on Toshiba (other-otc: TOSBF.PK - news - people ) to neutral. They fear that by borrowing billions for an investment that won't show any return for at least 15 years, the company has left its finances shaky at a time when it must marshal resources to keep pace in the viciously competitive flash-memory-chip market, a business that accounts for half of Toshiba's $2 billion in earnings before interest and taxes. Toshiba ranks fourth behind Intel (nasdaq: INTC - news - people ), Samsung Electronics and Texas Instruments (nyse: TXN - news - people ) in revenue from semiconductors.
But there is more to 62-year-old Nishida's reach than price alone. Toshiba had to extend itself because Marubeni (other-otc: MARUY.PK - news - people ), the big trading firm, backed out late in the bidding from taking 20% of the purchase. That added $1.1 billion to Nishida's tab.
For a sprawling industrial entity that makes everything from washing machines, PCs and medical scanners to mobile phones, dvd players and elevators, this may not be a bet-the-company move. But Nishida must figure he needs to stay in a business that is now bringing in less than $2 billion of the company's $55 billion in annual sales and is seeing a sunset of reactor building in Japan. Indeed, he says as much--"There's no alternative except for buying"--in an interview in Toshiba's capacious executive suite overlooking Tokyo Bay.
Read the full text. . .
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