Record-setting TXU buyout completed

TPG, KKR and Goldman Sachs have completed the US’ largest-ever buyout in the form of their controversial, $45 billion deal for Texas energy utility TXU.

The largest-ever US leveraged buyout completed today with the close of the $45 billion (€32 billion) sale of TXU. The close comes one month after 74 percent of the Texas energy giant’s shareholders voted in favor of the $69.25 per share cash offer from TPG, Kohlberg Kravis Roberts and Goldman Sachs Capital Partners, and roughly eight months after the consortium’s initial bid.

TXU: soon to split

The road leading to today’s close has been long and arduous, requiring much lobbying and public relations work on the part of the private equity firms. Early on, the buyout firms bargained with environmental advocacy groups that deplored TXU’s pollution control standards. Henry Kravis, KKR co-founder later appeared with TPG co-founder David Bonderman before various committees and commissions to assuage Texas legislators’ fears that private equity ownership would hurt consumers. Labor unions also took advantage of the transfer of ownership to speak out against a preexisting subcontracting agreement in place at TXU, which the buyout consortium agreed to squelch.

As previously reported, the private equity firms promised a number of initiatives designed to placate these stakeholders. TXU said it will cut retail prices by 5 percent by year end. TPG, KKR, Goldman Sachs and TXU have also agreed to commit $150 million over 5 years to assist low-income customers, and the private equity firms will create a Sustainable Energy Advisory Board led by chairman emeritus of the World Wildlife Fund, William Reilly. Finally, TXU agreed tp withdraw applications for eight new coal-fired generation plants it had previously hoped to build.

TXU will henceforth operate under the name Energy Future Holdings. The company will continue to function as one entity through the first half of 2008, at which point the new owners expect to have completed a restructuring that will divide Energy Future Holdings into three separate businesses: TXU Energy, an electricity retailer; Luminant, a power generation business whose operations will include mining, wholesale marketing and trading and construction; and Oncor, a regulated electric distribution and transmission business. The private equity firms plan to sell a 20 percent stake in Oncor.

In conjunction with the deal’s close, TXU head John Wilder has resigned as chairman and chief executive. Donald Evans, former US secretary of commerce under President George W. Bush, will take over as non-executive chairman of Energy Future Holdings.

The company’s private equity owners have also assembled a heavy hitting board of directors to support Wilder, including the aforementioned Reilly; former US ambassador to Sweden Lyndon Olson; Central Region Plains Capital Bank chairman James Huggines; Pharos Capital Group’s Kneeland Youngblood; and former US secretary of state James Baker.