TXU board approves $44bn buyout(2)

On Sunday night, the board of US energy giant TXU gave tentative approval to a record bid from KKR and Texas Pacific Group. The largest-ever LBO includes a key concession to environmentalists, according to reports.

A investor consortium led by New York LBO shop Kohlberg Kravis Roberts and the Forth Worth, Texas-based Texas Pacific Group is expected to announce a deal Monday morning to acquire Texas energy concern TXU Corporation for around $44 billion (€58 billion), according to reports.

According to a report in the Associated Press on Sunday night, TXU’s board of directors has given tentative approval to the deal, which involves a $32 billion purchase price and roughly $12 billion in debt.

The deal reportedly includes an agreement from KKR and TPG to halt construction of nine coal-powered plants in Texas. TXU has been persistently criticised by environmentalists.

TXU CEO John Wilder would be included in the buyout plans. The deal would offer $69 to $70 per share, a premium of $10 on Friday’s closing price.

If the deal goes through, the transaction would become the largest leveraged buyout of all time, surpassing last month’s buyout of office REIT Equity Office Properties by The Blackstone Group for $39 billion.

Demonstrating the growing strength of private investors—and growing interest in the energy sector—the recent reports suggest the investors would need to raise around $30 billion in debt for the TXU deal.

Dallas-based TXU has 2.4 million customers in the Lone Star state. TXU owns and operates one of the largest lignite coal surface mining operations, which produces 23 million tons of coal annually. The group’s portfolio has a number of nuclear and coal plants and has recently raised the ire of environmentalists groups with aggressive plans to build 11 additional coal plants in Texas.

Henry Kravis is no stranger to big deals. KKR also led the charge on the 1988 RJR Nabisco deal, which until recently was the largest private equity deal of all time. The firm paid $31.4 billion for the conglomerate.

The firm joined TPG and several other private equity backers in the acquisition of Texas Genco – a power-generation company that had several key coal-powered plants.