TXU recruits support for $45bn buy-out

TXU on Monday embarked on a drive to promote its $45bn leveraged buy-out led by Kohlberg Kravis Roberts and Texas Pacific Group, amid mounting evidence that the private equity boom has entered a new, more highly politicised era.

Executives at the Texas-based power company said the deal would bring lower prices for consumers in the state and stronger environmental policies, including a significant reduction in carbon emissions and more investment in renewable energy.

But in a sign of private equity’s increasing awareness that acquiring big companies entails garnering the support of politicians and special interest groups as well as investors, KKR and TPG agreed to scrap plans to build eight of those coal plants under their ownership.

The new owners also agreed to bring in James Baker, former US secretary of state, William Reilly, former Environmental Protection Agency administrator, and Donald Evans, former US commerce secretary, to help oversee the investment.

In an interview with the Financial Times, Mr Wilder said he had proposed an “aggressive” standalone plan that included many of the moves that would be undertaken by TPG and KKR.

But he said the company’s board concluded that his proposal was “inferior” to the buyout. “[The buyers] bring a network of individuals and capabilities that a company like TXU couldn’t construct on its own,” Mr Wilder said. “We believe they will be a catalyst for innovation.”

In leveraged buyouts, private equity groups typically aim to generate returns in excess of 20 per cent over a timeframe of about five years.

When TPG and KKR take over TXU, they will split it up into its three main business lines: retail, generation, and transmission. Theoretically, the buyers will earn their return by selling each of the units or taking them public several years from now.

TXU shareholders will receive $69.25 per share in the deal, which represents approximately a 15 per cent premium over the company’s closing share price on Friday.

If completed, the deal would represent the largest leveraged buy-out on record, exceeding this month’s $38.9bn takeover of Equity Office Properties, the commercial real estate group, by Blackstone.