According to the National Assembly and trade authorities on Sept. 16, the two countries are in final-stage talks over the acquiring entity, the size of the stake and the structure of the share transaction. The nuclear industry had initially expected Korea to purchase the Westinghouse stake using the U.S. investment fund it is creating, but a plan under which KEPCO and KHNP sign a separate memorandum of understanding with Westinghouse is also reportedly under discussion. "In addition to the MOU between the two governments, a corporate contract between KEPCO, KHNP and Westinghouse could be announced at the same time," a government official said.
The specific stake size and price have yet to be determined. Within the nuclear industry, however, the prevailing view is that Korea must secure at least 10% for the investment to be meaningful.
Filings submitted to the U.S. Securities and Exchange Commission by Westinghouse shareholders Brookfield and Cameco show that Cameco holds consent rights over major management items voted on by the Westinghouse board. Brookfield and Cameco, the two main shareholders, each nominate three directors, but voting rights are split 51% and 49% in line with their respective stakes.
The minimum threshold for participating in management was found to be a 10% stake, as Westinghouse shareholders lose the right to nominate directors if their holding falls below that level. The 10% floor also applies to the power to block board approval of "reserved matters," such as a major shareholder seeking to transact with related parties. The threshold for participating in core management decisions such as nuclear plant orders or the sale of business rights is 25%.
That appears to be precisely why the government is sparring with Washington over the exact stake size. Korea has reportedly set a strategy of first securing at least 10% to keep the door open to management participation, then resolving the intellectual property issues that have repeatedly hampered its nuclear export business. The U.S., for its part, is under pressure to block Korean involvement in nuclear power — a strategic industry — as much as possible. "The specific method of securing a stake must be negotiated with the two main shareholders as well as the U.S. government," said Hur Yoon, a professor at Sogang University's Graduate School of International Studies. "The key is what authority you can hold on the board, not the size of the stake."
The number of Westinghouse shares the U.S. government can provide directly to Korea will likely depend on Westinghouse's corporate value immediately after an initial public offering. Late last year, the U.S. secured the right to demand an IPO if Westinghouse's value exceeds $30 billion. The U.S. government's stake would then equal 20% of the company's value minus $17.5 billion. If the IPO valued the company at $30 billion, for example, the U.S. government's stake would be 8.33%.
Financing would also be a problem if KEPCO and KHNP step in to buy the Westinghouse stake. Even assuming a $30 billion (about 41 trillion won) valuation and a purchase of just 10%, 4.1 trillion won in cash would be required. The government has said it will inject at least 500 billion won into KEPCO using the future response fund to be launched this year.
Meanwhile, the government pushed back its briefing to the National Assembly on U.S. investment from Sept. 17 to Sept. 22. As a result, the signing of the U.S. investment agreement, initially expected on Sept. 18, is likely to slip past Sept. 22. "The broad framework of the negotiations is holding, but last-minute agreement is needed on several points of contention," a ruling party official said.
