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Record bid for US utility includes green pledges
By Justin Cole
AFP
WASHINGTON
Petroleumworld.com 02 27 06A US private equity consortium Monday launched a record 45-billion-dollar bid for Texas energy group TXU, pledging to boost the utility's environmental stance and cut homeowners' power bills.
The mega bid by Kohlberg Kravis Roberts and Texas Pacific Group, backed by a group of deep-pocketed Wall Street banks including Goldman Sachs, is six billion dollars higher than the prior record set for a private equity buyout.
It follows a flurry of takeover activity by equity funds, which snap up the public shares of target company in a bid to delist it from the stock market and take it private.
KKR and TPG, however, are also mounting a savvy play for the backing of TXU's consumers and environmental critics as well as the Texas energy firm's shareholders, and have enlisted the backing of US environmental groups.
The private equity groups have pledged to deliver price cuts to homeowners and to only build three new coal-fueled power plants instead of 11 such plants that TXU was planning to build against fierce environmental opposition.
The funds offer includes debt of 12 billion dollars owed by TXU and represents a premium of 25 percent on TXU's average share price over 20 days to February 22.
They hope to close the deal in the second half of 2007.
Shareholders of Dallas-based TXU, one of America's largest power firms and Texas' biggest electricity producer, would be offered 69.25 dollars per share, but its management remains free to solicit counter bids until April 16.
TXU's shares rocketed 8.00 dollars higher, or 13.3 percent, to 68.02 dollars in afternoon trading.
KKR and TPG said in a statement that their consortium, which also counts Citigroup and Morgan Stanley, will undertake to trim homeowners' electricity bills by up to 10 percent.
"The newly privatized company will deliver price cuts and price protection benefits to electric customers" and would also bolster environmental practices and make significant investments in alternative energy, the funds said.
They also pledged to reduce TXU's planned coal-fired capacity by 75 percent as well as boosting wind and solar power programs.
The deal's green credentials gained the backing of Environmental Defense and the Natural Resources Defense Council (NRDC).
"The smart money is now on clean energy and lower emissions," said the head of NRDC's climate program, David Hawkins.
The deal will require regulatory approval, but Washington lawmakers welcomed its environmental aims.
"I am pleased that the financial community is beginning to respond to our concerns about plans to build new power plants that will produce large amounts of carbon dioxide," Senate Energy Committee chairman Jeff Bingaman said in a statement.
Industry analysts at UBS said the deal would likely gain regulatory backing.
The deal's environmental endorsement comes amid a wider move by major US companies to burnish their green credentials, in part amid mounting public concern about climate change and greenhouse gases.
The funds also appear to have made some smart political moves.
Former US secretary of state James Baker will serve as a senior advisor to the funds while Donald Evans, a former commerce secretary and close friend of US president George W. Bush, will join TXU's board, under the funds plan to takeover TXU.
TXU had struggled in Europe, however, where it sold off its British power assets in 2002 and wrote off over three billion dollars in investments.
The deal sets a new record in the surging price tags for such takeovers by private equity firms, or pools of private investors, which have tapped easy access to financing through low interest rates.
Such takeovers, often known as leveraged buyouts, by investment funds have, however, triggered concern among some regulatory authorities and employees of companies in Europe.
The KKR-TPG offer exceeds the previous record for a large deal by investment funds, rung up by the Blackstone Group's 39-billion-dollar takeover of US office group Equity Office Properties Trust. That deal included 16 billion dollars of debt.
The value of corporate acquisitions by investment funds hit a record global total of nearly 600 billion dollars in 2006, over half of which were chalked up in the US, up a hefty 70 percent from 350 billion dollars in 2005.
AFP 26 2050 GMT 02 07
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