KKR and Texas Pacific in record $45bn TXU buyout

TXU Corp. the Dallas-based energy company, has confirmed that it has agreed to be bought by a pair of private equity firms, Kohlberg Kravis Roberts and Texas Pacific Group, for $45 billion.
GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley said they intend to be equity investors.
Under the terms of the merger agreement, shareholders will be offered $69.25 per share, which represents a 25 per cent premium to the average closing share price over the 20 days to last Friday.
TXU said that as a result of this transaction, the newly privatised company will deliver price cuts and price protection benefits to electric customers, strengthen environmental policies, make significant investments in alternative energy and institute corporate policies tied to climate stewardship.
The record buy-out comes only weeks after The Blackstone Group set a record with its acquisition of Equity Office Properties, the US real estate brokerage, for nearly $39 billion.
It also comes as a group that includes Texas Pacific has said that it is considering an £11 billion bid for J Sainsbury, the UK’s third-largest retailer, in what would be the biggest deal of its kind in Europe.
Sources close to the TXU transaction say that KKR, TPG and Goldman have been working on the deal for months. Other firms, including Blackstone, may be invited to join the consortium once the deal is agreed.
Blackstone and TPG have worked together previously in the sector. In 2004 they invested with Hellman & Friedman in Texas Genco, which is based in the same US state as TXU.
They sold the stake about a year later for $8.3 billion, including debt, to NRG Energy, earning a sixfold return on the investment.
TXU and its chief executive, John Wilder, have been embroiled in a battle with environmentalists over the use of coal-fired stations since the utility announced a $10 billion building programme last year.
Under Mr Wilder the company said it was imperative that the plants were built to meet the future demand for electricity. Critics, however, argued that increased carbon-dioxide emissions represented too high a price. “TXU was the poster child for why we need federal legislation on global warming,” said Jim Marston, the regional head of Environmental Defence in Texas, which struck the ten-point agreement with KKR and Texas Pacific in conjunction with the Natural Resources Defence Council.
“Texas Pacific called us two weeks ago, told us of its intentions towards TXU and said it wanted to make a deal with us,” Mr Marston said. “For a private equity group to call upon an environmental group like that shows just how seriously they are starting to consider the sensitive regulatory and environmental concerns around their deals.”
One source close to the talks said that TPG and KKR had to proceed with three of TXU’s coal plants because they were already under construction. The pair have pledged to cut emissions of regulated pollutants, such as nitrogen oxides and sulphur dioxide, by 20 per cent on the three proposed plants.
They also agreed to back federal legislation to impose a cap on carbon-dioxide emissions and cut TXU’s own emissions to 1990 levels by 2020.
Source: The Times

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