Two Canadian Firms Ink $7.9B Deal to Buy Westinghouse
Months after giant Canadian private equity firm Brookfield put Westinghouse up for sale in May 2022, a deal has finally appeared. In an all Canadian line up, uranium miner Cameco has teamed with Brookfield Renewable Partners to acquire the company. Brookfield Renewable, with its institutional partners, will own a 51% interest in Westinghouse and Cameco will own 49%.
The total enterprise value for Westinghouse is $7.875 billion. Westinghouse’s existing debt structure will remain in place, leaving an estimated $4.5 billion equity cost to the consortium.. This equity cost will be shared proportionately between Brookfield and its institutional partners (approximately $2.3 billion) and Cameco (approximately $2.2 billion).
Brookfield Renewable Power Fund originated as the Great Lakes Hydro Income Fund before changing its name in 2009. Brookfield Renewable Power Inc. was a wholly owned subsidiary of Brookfield Asset Management.
The deal appears to be, on the Brookfield side, a shift of the Westinghouse assets from one part of the overall fund balance sheet to a subsidiary.
In an article published in ‘Institutional Investor” 10/19/22 a Brookfield executive explains why the firm moved Westinghouse to a subsidiary in its deal with Cameco rather than selling the firm outright.
Nothing in the official press statement indicates how management of Westinghouse will change, or remain stable, once the deal closes which is expected in the second half of 2023.
There are plenty of questions which are pending about Westinghouse nuclear technology investments, such as its eVinci mini reactor, that Westinghouse has made, or the firm’s ability to sell more AP1000s reactors outside of China which is building a domestic version – the CAP1000 – at multiple sites. Westinghouse recently filed for Vendor Design Review for the eVinci mini reactor with the Canadian Nuclear Safety Commission. The effort for Westinghouse is funded by a CAD $27M grant from the Canadian government.
Deal Makes Sense for Cameco
The deal makes sense for Cameco which now will be able to sell its uranium for nuclear fuel manufacturing to Westinghouse.
Cameco is one of the largest global suppliers of uranium fuel for nuclear energy, with extensive uranium mining and milling operations, as well as refining and conversion facilities and CANDU fuel fabrication for heavy water reactors. According to its 2Q2022 financial report it has revenue for the period of $558M and net profit of $93M.
Cameco Sees Major Benefits for the Deal
A key benefit for Cameco, according to an analysis by the Seeking Alpha website, is that it expands the firm’s market for its uranium. Defending the $7.9B deal, Cameco CEO Tim Gitzel said acquiring Westinghouse allows Cameco (CCJ) to capitalize on the full nuclear supply chain, rather than only being a source of the base fuel, and he sees a “wave” of demand coming for nuclear power as Russia’s invasion of Ukraine was a “game changer” for countries seeking energy security.
Gitzel also said in the press statement, “[the deal] is expected to increase our ability to meet the growing needs of existing and new customers at a time when origin and security of supply is of significant concern. At the same time, we expect the recurring demand for Westinghouse’s operating plant services and nuclear fuel will generate a strong revenue stream and add stable cash flow to complement Cameco’s existing uranium and fuel services business.”
Eight Capital analyst Ralph Profiti told Seeking Alpha “ Cameco’s (CCJ) acquisition as “a strategic move to diversify and vertically integrate along the nuclear value chain as a complement to its high-quality, tier-one uranium asset base and fuel services segment, which combines CANDU fuel manufacturing for heavy water reactors with [Westinghouse’s] global nuclear fuel and plant services platform for light water reactors.”
Analysts at Canaccord Genuity told Seking alpha they believe the deal makes long-term strategic sense, as combining its existing upstream uranium production with Westinghouse’s downstream capabilities effectively makes Cameco (CCJ) a “one-stop shop” for utilities.
Cameco also has a 49% stake in the laser enrichment process developed by Silex. Developed jointly with GE-Hitachi and tested at the firm’s Wilmington, NC, plant, despite years of development and testing, it still isn’t ready for production.
Brookfield’s Renewable Energy Play
Less apparent is the rationale and role of Brookfield Renewable Partners. The firm’s portfolio consists of hydroelectric, wind, solar and storage facilities in North America, South America, Europe and Asia. One possible strategic benefit is that it would use nuclear reactors to provide grid stability for the intermittent nature of renewable power systems.
Brookfield Renewable is among the world’s largest investors in clean energy and transition assets, with approximately 125,000 MW of operating and development capacity worldwide.
According to a Q1 2022 report, the firm’s portfolio consists of 50% hydro, 22% wind, 15% solar, and 13% other. The firm reported net income of $33M on revenue for the period of $1.14B. Major expenses included operating costs of $350M, interest on debt of $266M, and depreciation of assets of $401M.
Connor Teskey, CEO of Brookfield Renewable, said: “Partnering with Cameco brings deep nuclear sector expertise, alongside our knowledge of energy markets and global customer base, to form a formidable champion for nuclear power. We see significant potential to grow the business and deliver on broader growth in the nuclear power sector through our strategic partnership with Cameco.”
Westinghouse Sees Benefits for the Deal
The joint press release highlighted a number of benefits for the deal for Westinghouse.
Westinghouse services about half the nuclear power generation sector and is the original equipment manufacturer to more than half the global nuclear reactor fleet. The company has industry-leading intellectual property and a specialized workforce of roughly 9,000 employees capable of operating in highly regulated markets around the world.
Approximately 85% of Westinghouse’s revenue has come from long-term contracted or highly recurring customer service provision with a nearly 100% customer retention rate given its comprehensive services offerings and position as an original equipment manufacturer, providing stability in all macroeconomic environments.
Energy supply chains are coming under stress as a result of geopolitical uncertainty. In the short-term, the transaction provides the opportunity to win new business supporting dozens of nuclear facilities across Eastern European countries traditionally served by Russia. In the medium term, demand for stable supply of nuclear fuel and technology is expected to grow substantially, commensurate with the growth in nuclear power generation as countries look to increase energy security.
Westinghouse has Four Key Business Lines:
Operating Plant Services: Recurring service provider for outages and maintenance, engineering solutions, and replacement components and parts.
Nuclear Fuel: Long-term contracting for the manufacturing and installation of fuel assemblies and other ancillary equipment across multiple light water reactor technologies, including as the original equipment manufacturer for approximately half the nuclear plants worldwide.
Energy Systems: Designing, engineering and supporting the development of new nuclear reactors.
Environmental Services: Services to government and commercial customers that support nuclear sustainability, environmental stewardship and remediation.
Background on Westinghouse History
Westinghouse filed for Chapter 11 bankruptcy protection with US courts in March 2017 in the face of extensive financial difficulties. The filing affected only its US operations, which included projects to build four AP1000 reactors – two each at Vogtle in Georgia, and the VC Summer site in South Carolina. The collapse of the V C Summer project left South Carolina ratepayers with billions in unrecoverable costs.
In 2018, Brookfield Business Partners (together with institutional partners collectively known as Brookfield) announced that it had agreed to acquire 100% of Westinghouse from Toshiba for about $4.6 billion. Brookfield completed the purchase in August 2018, marking Westinghouse’s exit from Chapter 11 bankruptcy protection as a restructured company.
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