Dallas and Atlanta - Investors led by Kohlberg Kravis Roberts (KKR) and Texas Pacific Group will buy TXU, the largest power producer in Texas, for $45 billion (R320 billion) in the biggest-ever leveraged buyout.
KKR, run by Henry Kravis and George Roberts, and David Bonderman's Texas Pacific, joined by Goldman Sachs Group, will pay $69.25 for each TXU share, or 15 percent more than the Dallas-based power producer's closing price on February 23, the companies said yesterday in a statement. About $12 billion in debt will be assumed, TXU spokesperson Lisa Singleton said.
The firms won support for the buyout from some environmentalists by agreeing to sharply scale back TXU's controversial $10 billion plan to build 11 new coal-fired power plants that would produce tons of new greenhouse gas emissions.
They also agreed to cut electricity prices by 10 percent and limit prices until September 2008.
TXU directors voted on Sunday night to recommend that shareholders approve the sale. The price represents a 25 percent premium to TXU's recent average closing stock price before Friday.
The deal would top this month's takeover of Equity Office Properties Trust, the biggest US owner of office buildings, for $39 billion by Blackstone Group.
"The general availability of money is driving these transactions higher and higher," said Todd Richey, a former investment banker with Banc of America Securities, who now teaches finance. "Occasionally, there's hubris or irrational exuberance, but with the low cost of capital right now, there's lots of opportunities for big deals to be successful."
Despite curtailing plans for coal-fired generators, KKR and Texas Pacific may still struggle to get the deal cleared after two proposed buyouts of utilities failed in recent years, and two of the largest US utility mergers were also undone by opposition from state regulators and politicians who feared rising power rates.
TXU, after almost going bankrupt in 2002 because of a failed overseas expansion, may earn $2.6 billion in 2006, up 51 percent from a year earlier, according to a survey of six analysts. Natural gas prices that more than tripled in this decade have increased power prices in Texas, making TXU's coal and nuclear plants more valuable.
The plants can produce more than 18 300 megawatts, and the company is also the largest electricity retailer in the state. TXU owns a transmission business that could be sold to pay off debt used to fund the buyout.
TXU chief executive C John Wilder has overseen an almost fivefold gain in TXU shares since taking over in February 2004 after returning TXU to a focus on electric generation and distribution in the Dallas region.
TXU and its buyers are agreeing to abandon eight of the 11 coal-fired power plants the company planned to build and will support mandatory US limits on emissions that contribute to global warming.
The Natural Resources Defense Council and Environmental Defense have negotiated in the past two weeks with the buyout firms. The company will also devote $400 million to cutting power demand in Texas.
TXU's planned expansion stirred opposition among environmentalists and mayors in Texas because of the prospect of increased pollution that could make smog worse in Houston and Dallas, and rising carbon dioxide emissions.
TXU shares gained $2.38, or 4.1 percent, to $60.02 in New York on Friday. The shares jumped another $10 in after-hours trading.