Buying Westinghouse to build the world’s largest nuclear business (2006)

What the bet on being number one left behind

At the heart of this decision was the choice to bet Toshiba’s growth on the global boom in new nuclear construction, reaching beyond a maturing domestic market. Taking in a pressurized-water maker from outside, holding both reactor types, and vaulting to number one in the world — the vision itself was in step with the “nuclear renaissance” then in vogue. But how far Toshiba had seen through the acquisition price, swollen by the bidding war, and the risks inherent in nuclear power as an ultra-long-term, capital-intensive business, is open to question. That it paid a consideration above the going rate at a moment that looked like an opportunity is where the danger of this investment shows.

The outcome of the acquisition left the question of how far a single company’s judgement can withstand an upheaval in its external environment. Onto the shock of the Fukushima accident, which no one could have priced in, was laid a flaw specific to the business — ballooning construction costs in the United States — and the nuclear power Toshiba had counted on as its pillar of growth turned into its heaviest burden. Toshiba’s dismantling, from letting go of its breadwinner memory business to its exit from the stock market, can be traced back to this acquisition. The question is not whether concentration or dispersion is the right answer, but the weight of resting a company’s fate on a bet too large to walk back from — and that is what this decision asks of us today.