Japanese groups lead the way in £2bn race to buy Westinghouse

The US nuclear engineering company Westinghouse, which has been put up for sale by its owner, British Nuclear Fuels, is set to be sold to a Japanese buyer for a price in excess of $3.5bn (£2.0bn).

Toshiba and Mitsubishi Heavy Industries, part of the Mitsubishi group, have offered the highest price for the Pittsburgh-based company which was bought by BNFL in 1999. Toshiba and Mitsubishi will fight it out in a final round of bidding in the next few days.

Last year the British Government, which owns BNFL, put its profitable US business up for sale to capitalise on rising interest around the world in nuclear energy.

There has been intense competition for Westinghouse, one of the world's largest providers of nuclear technology and one of the main contenders to win a multibillion-dollar contract to build new reactors in China.

In recent weeks the bidding battle was whittled down to four contenders - the two Japanese companies and America's General Electric and Shaw.

The two US companies looked like the favourites because of their close connections with Capitol Hill, which is watching the sale of Westinghouse closely due to concerns about its national security implications.

But recently GE and the Louisiana-based Shaw have dropped back because the Japanese contingent signalled they were prepared to offer more than $3bn for Westinghouse, up from an initial valuation of about $1bn.

The final price is likely to be more than $3.5bn, because the buyer will take on about $600m of Westinghouse's historic nuclear clean-up liabilities, which the British Government is keen to remove from its own books. The price has delighted the Treasury, which has pushed within Whitehall for the sale of Britain's publicly owned nuclear assets for the windfall they would create for public coffers.

Senior officials, as well as the Chancellor Gordon Brown, are also keen to remove businesses from public ownership because of the potential massive liabilities the nuclear industry can create, as underlined by the radioactive leak at BNFL's Thorp plant last year.

Whichever of the two Japanese bidders prevails must still overcome one final hurdle. The deal is likely to be referred to CFIUS, the White House-controlled committee that regulates foreign investments in US companies because the sale of such a large US-based nuclear company is seen by many on Capitol Hill as a threat to national security.

There is a strong possibility that Westinghouse's Japanese buyer might agree a side deal with a US company to jointly handle its management, to assuage the concerns of American politicians. The buyer is also likely to have to promise not to hand over sensitive nuclear technology to countries such as China or Iran.

The sale of Westinghouse will create a huge pay day in advisory fees for NM Rothschild, the investment bank which has handled the deal for the Government.