As South Korea and the United States hold late-stage talks over the purchase of a stake in Westinghouse, the U.S. side has told Seoul that the payment for the stake would be separate from the $200 billion cap on Korean investment in the United States, according to people familiar with the discussions. That would force KEPCO or Korea Hydro & Nuclear Power, the likely buyers, to raise the money separately, a prospect expected to draw controversy. Concerns have also been raised that unless Korea secures at least 10%, it would struggle to win even minimal management rights such as the ability to name a director, leaving it effectively a financial investor.
The two countries are in final negotiations over who will buy the stake, how large it will be and how the transaction will be structured, according to lawmakers and trade officials on the 16th. Nuclear industry officials had initially expected the stake to be bought through a Korean fund set up for U.S. investment, but KEPCO and KHNP are also discussing signing a separate memorandum of understanding with Westinghouse. "Alongside the memorandum between the two governments, a corporate agreement between KEPCO, KHNP and Westinghouse may be announced as well," a government official said.
Neither the size nor the price of the stake has been settled. Nuclear industry officials broadly argue that Korea would need at least 10% for the investment to carry any weight.
Filings submitted to the U.S. Securities and Exchange Commission by Brookfield and Cameco, Westinghouse's shareholders, show that Cameco holds consent rights over major management decisions put to the Westinghouse board. The two shareholders each name three directors, but their voting power is split 51% to 49% in line with their stakes.
The minimum threshold for a role in management is a 10% stake. A Westinghouse shareholder loses the right to name a director if its holding falls below that level. The same 10% floor applies to the power to block board approval of "reserved matters," such as a major shareholder seeking to transact with a related party.
The threshold for a say in core business decisions, such as nuclear plant orders or the sale of business rights, is 25%. Under its shareholders' agreement with Brookfield, Cameco required that board approval of "certain matters" concerning Westinghouse's business and operations carry the consent of at least one director from each side. That amounts to a veto that keeps proposals Cameco opposes from clearing the board.
The agreement also requires approval from both major shareholders for "reserved matters" including annual budget approval, major contracts and entry into new businesses. Maintaining those rights requires a stake of at least 25%. If Korea buys in and the existing shareholders' agreement is honored, it would need a holding of that size for meaningful participation in management.
That appears to be why the government is pressing Washington over the size of the stake. Korea is understood to have settled on a strategy of first securing at least 10% to keep the door open to management participation, then resolving the intellectual property disputes that have repeatedly hampered its nuclear exports. Washington, for its part, wants to keep Korean involvement in a strategic industry to a minimum. "The specific method of acquiring a stake has to be negotiated with the two major shareholders as well as the U.S. government," said Huh Yoon, a professor at Sogang University's Graduate School of International Studies. "What matters is not the percentage but what powers you hold on the board."
The volume of Westinghouse shares Washington can hand Korea directly will depend on the company's valuation immediately after an initial public offering. Late last year the U.S. government secured the right to demand an IPO if Westinghouse's valuation exceeds $30 billion. Its own stake would then equal 20% of the valuation minus $17.5 billion. At a $30 billion valuation, that works out to 8.33%.
A higher valuation would enlarge the U.S. government's stake, but waiting for that would take considerable time, and the government is required to offer any shares to Cameco and Brookfield before transferring them to a third party. For Korea to obtain enough shares to control management, it would have to consider buying from Brookfield and Cameco directly. "Either way, a new shareholders' agreement means negotiating with the existing shareholders," a government official said.
Funding is another problem if KEPCO and KHNP buy the stake. Even a 10% purchase at a $30 billion valuation would require $3 billion, or 4.1 trillion won, in cash. That is a heavy commitment for KEPCO, which carries more than 210 trillion won in total debt. As a listed company, KEPCO may also need shareholder approval for an investment of that scale.
The government, meanwhile, pushed back its briefing to the National Assembly on U.S. investment from the 17th to the 22nd. The signing of the investment agreement, previously expected on the 18th, is likely to slip past the 22nd as well. "The broad framework of the negotiations holds, but several issues still need to be settled at the last minute," a ruling party official said.
