If not met with regulatory opposition, the deal will become the largest equity buyout in history.
Under the terms of the acquisition agreement, shareholders will be offered $69.25 per share at closing, which represents a 25 percent premium to the average closing share price over the 20 days ending February 22, 2007.
In an attempt to woo regulators suspicious of private equity’s potentially asset-stripping presence in the energy sector, the deal promises various consumer benefits. In particular, the consortium has promised a 10% price decrease leading to $300 million of annual savings for residential customers and price protection through September 2008.
The deal also attempts to give TXU an image overhaul and stifle recent controversy by promising a stronger environmental policy and a pledge to reduce emissions. KKR and TPG announced that eight of TXU’s 11 planned dirty pulverized coal-fired generation plants would be scrapped, and that the new company would invest $400 million in demand side management initiatives and annual carbon emission reductions.
“We have listened to the various TXU constituencies,” said Henry Kravis, founding partner of KKR. “As a result, we have developed a new vision with management of how we can turn TXU into a more innovative, customer-centric, environmentally friendly company, and we plan to work with management to implement it.”
The company plans on establishing a sustainable energy advisory board and William Reilly, chairman of the World Wildlife Fund, is to join the main TXU board. Also joining as advisory chairman is former US secretary of state James Baker, who recently produced a report which heavily criticized BP for shortfalls in its US oil refinery management.
While the deal has won backing from environmental groups such as Environmental Defense and the Natural Resources Defense Council, it may hit possible state regulatory hurdles despite TXU General Counsel David Poole's assertion in a conference call that regulatory approval was not needed for the $45billion sale to be completed, despite the fact that both KKR and TPG have failed in previous utility takeovers in different states.
Nevertheless a conflict may arise between the deal’s supporters and the regulatory body if Texas commissioners perceive unreasonable costs being passed along to customers as a result of the deal. Critics contend that the deal may result in higher prices for consumers.
The deal is expected to close in the second half of 2007.