TXU to Go Private in $32 Billion Deal

Private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co. are close to a deal to acquire Texas utilities powerhouse TXU Corp. (TXU) for about $32 billion in a massive buyout that would give the firms control of one of the nation's most powerful and controversial power companies, according to people familiar with the matter.

A person close to the matter said the firms would pay about $70 a share for the big utility, about $10 a share over Friday's closing price of $60.02. The company also comes with $12.38 billion in debt as of Sept. 30, 2006.

News of the KKR-TPG deal sent other private-equity firms, such as giant Blackstone Group, scrambling to try to figure out whether they wanted in on the KKR-TPG bid or whether to launch a rival bid, according to people familiar with the matter. Several years ago, Blackstone and TPG led the buyout of Texas Genco along with KKR and Hellman & Friedman. That turned out to be one of the most lucrative deals ever for the four firms.

The buying frenzy of the last few months has been driven by the plentiful supply of cheap debt. Even with such giant deals in the market as HCA Inc. there has been no sign that investors' enthusiasm has wavered. Indeed, bankers say that for every dollar of supply, there has been $5 dollars of demand from yield-starved investors.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

The deal could be approved in the next few days, this person said, though it is always possible it could fall apart at the last moment. The prospective owners plan to scale back some of TXU's plans to build generating plants, while also considering a rate rollback as an inducement to win state approvals.

TXU has emerged in recent years as one of the nation's dominant utilities, a status it achieved by asserting itself aggressively in the deregulated electricity market in Texas. The state has what is considered the most advanced deregulation plan in the nation, having recently lifted most limits on what companies can charge the general public for electricity. In Texas, TXU owns both the largest power-generation company in the state and the biggest electricity retailer, giving it a powerful grip on one of the nation's largest markets.

The company has been planning recently to increase its grip on Texas by building 11 big coal-fired power plants in coming years. That project has made it the target of harsh criticism by environmental interests that assert that TXU is adding plants that release substantial amounts of carbon dioxide, a heat-trapping gas blamed in part for global warming.

The company has also attracted criticism for its tactics with customers. During the ramp-up to a deregulated market, TXU has raised rates repeatedly and has been depicted as callous about the consequences for its customers in some areas. TXU charges some of the highest power rates in the nation.

TXU's powerhouse combination of assets has resulted in big profit and strong returns for investors. In the third quarter of 2006, TXU had net income of slightly more than $1 billion on revenue of $3.51 billion. The company's stock has made huge gains under Chief Executive C. John Wilder, with its shares increasing from about $10 in 2004 to today's $60 price.

But the company's time in the spotlight has often been uncomfortable. Last summer, it unveiled a proposal to build 11 coal-fired power plants in the state by 2010, taking advantage of a "fast tracking" order signed by Texas Gov. Rick Perry. That order appeared to force state agencies to issue necessary air permits with less opportunity for public challenges than in the past.

But the company's plan has bogged down amid heated opposition from a growing list of environmental groups, Texas politicians, business leaders and community groups. TXU's effort suffered a major setback this week when a Texas state court judge issued an injunction, ruling the governor appeared to have overstepped his authority.

Earlier this week, Wilder faced uncomfortable questioning before a Texas Senate committee, concerning whether his firm had amassed too much "market power," the ability to influence power prices. The state deregulated its retail electricity market a few years ago, and TXU has appeared to be the biggest beneficiary.