Energy Giant TXU to Go Private in $32 Billion Deal

A group of private-equity firms are in the process of purchasing Texas utility giant TXU Corp. in a $32 billion deal that, if approved, would be the largest leveraged buyout in U.S. corporate history.

The purchasers are a group of investors led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. The deal is a result of two powerful economic realities: The low cost of capital — which makes money more readily available for ever-larger buyouts — and the huge profits being reaped these days by giant energy companies.

Former EPA Administrator William Reilly, a partner in Texas Pacific, calls the deal "history-making."

"Texas — in particular the market area served by TXU — is a fast-growing area of the country," Reilly says. "It's increasing its energy use. The company has responded to that energy use very successfully. I think the market history for the company reflects that."

TXU is in the midst of a bruising battle over its proposal to build 11 new coal plants in Texas. Among those opposed to the proposal are environmentalists, dozens of Texas mayors, and ranchers and farmers who fear that it could worsen the state's existing air-pollution problems. Reilly helped broker a deal that won the critical support of environmentalists. In exchange, the investors agreed to scrap plans for eight of the 11 plants.

Henry Kravis, a founding partner of KKR, one of the lead investors behind the deal, called the compromise the "responsible" thing to do.

"I think it became clear to all of us as investors that, were we to do anything significant in energy in Texas or anywhere else — given the climate today, given the attitude towards the environment — we had to do it responsibly," he said. "And we wanted to do it in concert with some of the most authoritative and involved environmental groups, who understand this issue and care deeply about it."

The deal announced Monday has the support of the Natural Resources Defense Council and the Environmental Defense Fund.

Still, the proposed acquisition has several hurdles to clear. Shareholders and regulators will have to sign off on it. And TXU will have 50 days to seek rival bids. A bidding war could develop as other private-equity firms eye the opportunity.

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