TOKYO -- Toshiba's American nuclear unit Westinghouse Electric plans to file for bankruptcy protection Tuesday in the U.S., a step the struggling Japanese conglomerate hopes will curb damage to its reputation and open a path to recovery.
Toshiba is to announce Westinghouse's Chapter 11 filing as early as Wednesday morning here, with a news conference to follow. Shares in the conglomerate ended Tuesday at 217.2 yen -- less than half of their value before the parent revealed massive losses at Westinghouse late last year.
The conglomerate has since twice delayed announcing April-December 2016 earnings and been placed under examination as a "security under supervision" by the Tokyo Stock Exchange, raising the possibility of a delisting. This is in addition to the designation of "security on alert," made in 2015 in connection with Toshiba's faulty internal controls.
Having Westinghouse file for bankruptcy would take the unit off Toshiba's consolidated books. This would likely shrink significantly the 712.5 billion yen ($6.45 billion) loss the parent had been expected to book in connection with Westinghouse's late-2015 acquisition of a nuclear construction services firm and other goings-on at the unit.
Some have called the bankruptcy route inadvisable from an operational standpoint. But Toshiba has decided that cutting loose the largest source of its financial woes is necessary to rebuild trust with partners and investors. A Tuesday filing has the benefit of making the parent's position clear before an emergency shareholder meeting Thursday, where a proposal to spin off semiconductor memory operations will come up for a vote.
But Toshiba is still on the hook for Westinghouse debt it has guaranteed, which came to 793.4 billion yen at the end of March 2016. The parent has made clear that it will cover the guaranteed amount in full. Additional costs such as breach-of-contract penalties and provisions for the risk of future losses could raise Toshiba's tab to around 1 trillion yen, by some estimates. While the final tally could change, the likely result -- Toshiba ending March, and thus fiscal 2016, with negative net worth -- remains the same.