Shareholders approve TXU(3)

After months of debate, TPG’s and Kohlberg Kravis Roberts’ $45 billion (€33 billion) buyout of US energy giant TXU has been approved by the company’s shareholders. More than 74 percent of TXU’s total outstanding shares were voted in favor of the deal at today’s shareholder meeting, and 95 percent of the total shares voted on the deal voted in its favor. The final price of the merger is $69.25 per share in cash, plus the assumption of debt.

Goldman Sachs, JP Morgan and Morgan Stanley, have agreed to provide $37.4 billion in financing for the deal.

The two buyout firms have struggled for months to close the deal. In February the deal received the approval of TXU’s board, but faced intense criticism from all sides.

Two longtime critics of TXU, environmental advocacy groups Natural Resource Defense Center and Environmental Defense, wrung a host of concessions from TPG and KKR after weeks of negotiations. The private equity firms agreed to halt development plans for eight of 11 coal-fired power plants in TXU’s pipeline, reduce the company’s carbon emissions to 1990 levels by 2020 and endorse a federal carbon cap. The firms also promised to explore new coal generating technologies, devote $400 million to demand-side management initiatives and create a sustainable energy advisory board. Then as the shareholder vote on the deal drew closer, TPG and KKR offered to spend $30 million on pollution reduction over five years.

TPG and KKR also faced opposition from the Texas legislature, members of which expressed concerns that consumers would ultimately be hurt by the deal. Lawmakers unsuccessfully tried to introduce a bill that would give the state’s Public Utility Commission the power to review and reject the deal.

“Over the past 12 months, I have expressed concerns about the competitive market forces and their residential electricity rates,” said Senator Troy Fraser, the bill’s author, in a statement.

The private equity firms also attempted to appease the labour unions opposing the deal, agreeing to halt an existing labour subcontracting agreement that was opposed by The International Brotherhood of Electrical Workers union.

Additionally, TXU’s largest shareholder, Franklin Resources, said in late July that it would oppose the buyout on the grounds that KKR’s and TPG’s bid undervalued the company.

But, ultimately the firms’ efforts paid off: Fraser’s bill died, and environmental groups and the AFL-CIO endorsed the deal. In late August, the AFL-CIO wrote a letter to shareholders in which is said that “it seems highly unlikely that shareholder opposition to this offer will elicit improved transaction terms’ in light of “turmoil in the equity and debt markets”. Franklin Resources paid heed; it announced in advance of today’s shareholder vote that it would vote in favor of the transaction.

The deal is expected to close in the fourth quarter, pending antitrust approval and approval by the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.