Oceanfront Property in Arizona
February 24th, 2007 at 7:27 pm
Everyone’s favorite neighborhood power company, TXU, could become the property of two private equity firms today. This is huge, folks. If the TXU board votes today to accept Kohlberg Kravis Roberts (KKR) and Texas Pacific Group’s reported $45 billion buyout offer, this would go down as the largest such transaction ever. TXU Corp. CEO C. John Wilder is apparenty joining the funds in the buyout offer of the company he has run for three years.
Speculation is rampant on how this deal impacts the epic battle to halt TXU’s proposed coal plants and the fight to lower the company’s inflated electric rates. The Wall Street Journal is reporting that the buyers have plans to “scale back” the coal plants and are “considering a rate rollback as an inducement to win state approvals.” On the other hand, going private would make it much more difficult for activists to scrutinize the company’s finances and strategies. It would also erase the possibility of shareholder activism.
TXU is not some pissant, backwater company - CEO Wilder has turned this once-staid utility into a profit juggernaut with imperial plans. Wilder (no relation) has obviously figured out how to play the deregulated electricity market - and consumers - like a fiddle. The company generated $1 billion in profit just in the third quarter of last year, and Wilder has taken home somewhere around $200 million in “executive compensation” in the past two years. Wall Street digs it, but back home in Texas foes have been whispering “Enron.” However, unlike Enron TXU actually owns something - nuclear and coal power-generating plants that have become extremely lucrative in Texas’ deregulated electricity market.
KKR and Texas Pacific Group understand this better than most. In 2004, they joined two others funds in purchasing Texas Genco, a power company with coal and nuclear plants, for $900 million. A year later the four “flipped” the generation portfolio, selling it to NRG Energy for $5.8 billion. Do KKR and Pacific Group see similar “undervaluement” in TXU?
Update: Bloomberg is reporting that TXU will only pursue three coal plants, instead of 11, and agree to support mandatory limits on carbon dioxide emissions in order to appease environmental intersts involved in the buyout process. The company has also agreed to pony up $400 million for energy conservation efforts in Texas. Hot-damn!
