Japan's Toshiba Corp is in discussions to buy out U.S.-based Shaw Group's 20 percent stake in nuclear power plant company Westinghouse Electric Co, the Wall Street Journal reported, in a deal that would erase all American ownership of the 125-year-old Westinghouse.

Shares of Toshiba fell 5.8 percent to 2- year lows on Tuesday on concerns the chipmaker would be saddled with costs of buying additional shares it agreed in principal to acquire five years ago, before Japan's worst nuclear disaster put a chill on global demand for new reactors.

A deal could be announced as early as Tuesday, although the discussions are still ongoing and could fall apart, the paper said, citing people familiar with the matter. It did not mention a price.

Shaw partnered with Toshiba and Japanese engineering firm IHI Corp to buy Westinghouse from British Nuclear Fuels PLC for $5.4 billion five years ago. Toshiba bought 77 percent, Shaw purchased 20 percent, and IHI took 3 percent.

The company is not cash-rich, so investors are concerned that it may have to go through equity financing if it decides to buy the stake, said Makoto Kikuchi, chief executive of Myojo Asset Management.

A Tokyo-based spokesman for Toshiba declined to comment on the report. Officials at Westinghouse were not immediately available for comment. Shaw declined to comment.

The talks, if the report is true, come at a time when nuclear energy strategy has been reviewed globally after Japan's nuclear power plants were severely damaged by the earthquake and tsunami that hit the nation's northeastern coast in March, spreading radioactive materials.

OPTION TO SELL STAKE

Founded in 1886, Westinghouse pioneered long-distance and high-voltage power transmission. It also built the reactors for the world's first nuclear submarine and nuclear aircraft carrier.

Under the original deal in 2006, Shaw has an option to sell its Westinghouse stake to Toshiba. That option will expire at the end of February 2013 and Toshiba has been negotiating with Shaw to extend the period.

Toshiba, the world's No.2 maker of flash memory chips, has been under pressure to trim its non-core operations as it steels itself for quake-hit demand in Japan.

The company reported in July an 88 percent fall in its quarterly operating profit, blaming a slide in chip prices.

For Toshiba, this (additional stake purchase) will be a burden. They will have to divert resources they would probably want to deploy elsewhere. said Damian Thong, Macquarie Capital analyst.

I don't think it's such a big problem for Toshiba to borrow money to do this, but it's still an additional burden, he added.

(Additional reporting by Ayai Tomisawa, Kentaro Hamada and Mayumi Negishi in TOKYO and Megan Davies in NEW YORK; Editing by Muralikumar Anantharaman)

Japan Manufacturing