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Why has Toshiba lost 50% market value since late December?

Toshiba Corp, in the last week of December, said that it faced a multi-billion dollar writedown following a nuclear projects and services acquisition, an announcement that led ratings agencies to downgrade the electronics-to-nuclear conglomerate.

On December 27, Toshiba Corp, told its shareholders in a statement that at the time when Westinghouse entered into a Purchase Agreement (PA) to acquire 100% of the shares of S&W from Chicago Bridge and Iron Company N V (CB&I), “at the time, the estimate of the goodwill resulting from the transaction was approximately $87 million.”

Image Source: Reuters

However, it informed the public that “the possibility has been found that the goodwill will reach a level of several 100 billion yen or several billion US dollars, resulting in a negative impact on Toshiba’s financial results as a result of an impairment of all or part of the goodwill. Toshiba however said that the figures were still subject to determination.

“Westinghouse has found that the cost to complete the US projects will far surpass the original estimates, mainly due to increase in key project parameters,” Toshiba’s statement read.

According to media reports, Nikkei newspaper said the writedown could be about 100 billion yen while NHK said it could go up to 500 billion yen. While Kyodo news agency said that the losses at its nuclear business may go up to 700 billion yen.

After the announcement, Toshiba’s shares fell 12% to 392 yen in Tokyo. A day later, they were down 20% more to 311.6 yen. The tumble continued well into the new year. As it stands now, according to a report in Bloomberg, Toshiba posted its steepest decline since 1974 falling 26% intraday to 212 yen.

Image source: Reuters