TXU Confirms KKR-led Buyout

TXU Corp. (TXU-NYSE) has confirmed the approval of a merger reported late Friday with Kohlberg Kravis Roberts & Co. (‘KKR’) and Texas Pacific Group. Goldman Sachs is also participating in the buyout, and that was not covered in the original reports Friday.  This transaction will value the TXU leveraged buyout at in a transaction valued at $45 billion based upon the assumption of debt. GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be offered $69.25 per share at closing, and that is said to represent a 25 percent premium to the average closing share price over the 20 days ending February 22, 2007.

The new combined company is promising initial price cuts to consumers of 10% through September 2008 to secure approval from regulators.  It will also reduce the coal-powered plants from 11 to 3, and will expand renewable energy plans.  The company will also reorganize into 3 units: generation; transmission and distribution; and retail.  That sure sounds like it will be packaged in a way that will allow one or more of these to be sold off or repackaged as a future IPO.

TXU will reduce its own carbon emissions by increasing efficiency of its generating facilities by up to 2 percent and will drop plans for new coal-powered plants.  TXU’s board of directors has approved the merger agreement and has recommended that TXU’s shareholders adopt the agreement.  TXU may solicit proposals from third parties through April 16, 2007; which is why the stock is trading up at $70.00 and higher in initial trading this morning pre-market.

If you wish to get more details on the deal and to hear about any anticipated complications, there will be a conference call this morning at 9:00 AM EST.  The dial-in number is (800) 309-0343 in the U.S. and Canada and (706) 902-0117 internationally, conference ID 1228130. The call will be webcast at txucorp.com. Needless to say, this call will be heavily attended.

Here is a link to what we said on Friday with many other power company names that are trading higher because of the potentiality of more mergers in the sector.

Jon C. Ogg
February 26, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.