The Taking of...
TXU
Sightings from The Catbird Seat
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February 26, 2007
TXU announces $32B sale
to private firms
By David Koenig, AP
DALLAS - TXU Corp., Texas' largest electricity producer, said Monday it has agreed to be sold to a group of private-equity firms for about $32 billion in what would be the largest private buyout in U.S. corporate history if shareholders go along.
Kohlberg Kravis Roberts & Co. and Texas Pacific Group led a group that included Goldman Sachs & Co. and three other Wall Street firms that will pay $69.25 per share for TXU. They will also assume about $13 billion in debt.
The firms won support for the buyout from some environmentalists who have criticized TXU by agreeing to sharply scale back TXU's controversial $10 billion plan to build 11 new coal-fired power plants that would produce tons of new greenhouse gas emissions.
They also agreed to cut electricity prices 10 percent, which they said would save TXU residential customers more than $300 million per year, and limit prices until September 2008.
TXU directors voted Sunday night to recommend that shareholders approve the sale. The price represents a 25 percent premium to TXU's recent average closing stock price before Friday.
The deal tops the previous biggest buyout ever of $25.1 billion set in 1988 when RJR Nabisco was acquired by Kohlberg Kravis.
Goldman Sachs, Lehman Brothers, Citigroup and Morgan Stanley also intend to be part of the purchasing group at closing, the company said.
TXU also said former Secretary of State James A. Baker III will serve as advisory chairman to the new owners, former EPA Administrator William Reilly and former Commerce Secretary Donald L. Evans will join the TXU board.
http://news.yahoo.com/s/ap/20070226/ap_on_bi_ge/txu_sale_21
HISTORY
From the TXU website:
A Brief Look at Our Long History
Our roots are deep. One of the original city and rural electric utilities from which TXU grew was founded all the way back in 1882.
That original company became Dallas Power & Light in 1917, and then joined with two other utilities in 1945 under the Texas Utilities holding company. The three merged in 1984 to become TU Electric. We adopted the TXU name in 1999 as we expanded operations and quickly grew to become one of North America's leading energy services companies and energy retailers.
The Beginning
TXU first established roots in Texas. Since the turn of the century, a strong bond with customers has driven our service. Generating plants helped power the 1920s oil boom in West Texas through agreements that today would be called strategic partnerships. In East Texas, utility representatives worked with customers to revolutionize farming with electricity - an early version of a value-added service. Our natural gas sector, then an independent company called Lone Star Gas, was enhancing customers' lifestyles by going on the road to introduce gas ovens, ranges, dryers and water heaters.
By the 1930s, a network of Texas transmission lines linked three of the state's largest electric utilities: (DP&L), (TP&L) to the east and (TESCO) to the west. In 1945, Texas Utilities (TU) was founded as a holding company for the common stock of the three utilities.
Preparing for Change
For decades, the electric and natural gas industries looked much the same except for rapid growth. By the late 1980s, movement toward a massive industry restructuring had begun that would ultimately leave only a handful of the existing electric and gas utilities intact. TU was already taking measures to prepare for life in a new world.
DP&L, TP&L and TESCO merged in 1984 to become TU Electric. TU Electric acquired Southwestern Electric Service Company (SESCO) in 1993, which increased TU's customer base in Central and East Texas. In 1995, TU went international with the purchase of an Australian electricity distributor. On April 15, 1996, in addition to the obligatory stories about last-minute tax filings, there was some merger news. TU and ENSERCH (the parent company of Lone Star Gas), often rivals in the North Texas energy marketplace, announced they would combine.
The merger was completed in August 1997, expanding TU's services to include natural gas. Telecommunications soon became part of the portfolio with the acquisition of Lufkin-Conroe Communications.
Reaching Beyond Our Roots
The Australian energy market was historically under government ownership, with each state privatizing at its own pace. Eastern Energy, which TXU purchased in 1995, was one of five distribution utilities formed and privatized by the breakup of the state of Victoria's electric utility.
In 1998, TU extended its electric, gas and energy services operations to the United Kingdom. That same year Texas Utilities changed its name to TXU and all the subsidiaries adopted that name. TXU Energy in Europe then expanded beyond the UK with partnerships in continental Europe, where it became a major player in energy trading. In 1999, natural gas was added to the Australian holdings.
Deregulation and the New Millennium
The anticipated Texas deregulation legislation occurred in 1999. Passage of Senate Bill 7 sparked the kickoff of many initiatives at TXU to ensure the company's readiness for competition on January 1, 2002.
The year 2000 saw further expansion. Fort Bend Communications was added to TXU Communications. Other acquisitions included the purchase of Norweb Energi in the UK, the lease to operate a 1,280-megawatt natural gas generation station - Torrens Island - in South Australia and 51 percent of Stadtwerke Kiel AG, a German municipal utility.
In September 2002, TXU was a leading global energy company that appeared to be ahead of the curve in leadership and strategy. TXU was successfully weathering a slowing economy, a tightening credit market and gathering scandals hitting the electric utility industry, including the California energy debacle, the fall of Enron and the collapse of the industry's energy trading segment.
On October 4, 2002, TXU was forced to downgrade earnings expectations because financial difficulties had unexpectedly surfaced with our European operations. A perfect storm of market conditions hit, plunging us into a financial crisis that threatened TXU's viability as a company. TXU was challenged with the most serious crisis in its 100-year-plus history.
TXU responded decisively, focusing on our solid foundation of energy businesses in Texas and Australia, completing a successful first year of deregulation in Texas and continuing successful operations in Australia. TXU has since moved to strengthen its balance sheet, enhance credit, focus on deliver on its 2003 plan to earn $2 per share and achieve major cost reductions.
Today TXU is striving to achieve industry leadership by focusing on its core businesses - TXU Energy, TXU Power and TXU Electric Delivery. TXU recently sold its energy business in Australia, TXU Australia. TXU completed the sale of TXU Gas to Atmos Energy Corporation on October 1, 2004.
TXU is moving into the future with a strong focus on customers, efficiency and reliability and operating safely.
www.txucorp.com/about/history.aspx
October 9, 2002
Buyout firms seek
equity partners
By Randy Whitestone
Kohlberg Kravis Roberts & Co and other private equity firms are selling stakes in themselves to ensure their survival after their founding partners retire.
Kohlberg is in talks with two of its biggest investors, the Washington State Investment Board and Oregon Investment Council. The funds, with more than $US90 billion ($A164 billion) in assets, have agreed to provide almost half of Kohlberg's newest $US5.1 billion buyout pool.
Kohlberg is still run by founders Henry Kravis, 58, and George Roberts, 59. They have told investors they have no immediate plans to retire.
Firms including Blackstone Group, Carlyle Group, and Thomas H. Lee Partners have accepted outside investments from institutions, tying them to long-term sources of capital and giving their investors a share of profits and management fees that typically amount to 1.5 per cent of capital a year.
In 1999, Credit Suisse First Boston acquired 19.9 per cent of Warburg Pincus LLC. This year, the New York private equity firm raised a $US5.3 billion fund and passed control from Lionel Pincus, 71, to Joseph Landy, 40, and Charles Kaye, 38.
Buyout firms are also selling stakes in themselves because they need bigger chunks of capital to win acquisition contests.
Bidding contests are becoming common. About two dozen firms, many with more than $US5 billion each in available capital, bid for Qwest Communications International's yellow pages business earlier this year. The final price of $US7.1 billion required Carlyle Group and Welsh, Carson, Anderson & Stowe to commit $US750 million each.
Kohlberg's partnership sale would be a first for the biggest buyout firm, which was founded in 1976 by cousins Kravis and Roberts and fellow Bear Stearns banker Jerome Kohlberg. In 1989, the firm completed the biggest leveraged buyout with the $US31.4 billion purchase of RJR Nabisco.
Even with its reputation, it took Kohlberg two years to raise the $US5.1 billion fund.
Three years ago, mutual fund manager Putnam Investments put $US500 million into Thomas H. Lee Partners. The money was parcelled out among executives of the Boston buyout firm, including founder Thomas Lee.
Insurers are hunting for higher returns because stockmarket declines could force them to add to reserves in meeting guaranteed minimum death payments on equity-linked annuity contracts. American International Group, for example, has taken stakes in Blackstone and General Atlantic Partners.
AIG in 1998 agreed to invest $US150 million in Blackstone for a 7 per cent non-voting interest, and committed to put an additional $US1.2 billion in its funds over time.
The agreement "gives us more freedom to explore new opportunities", and signalled the "maturation" of the firm, said Blackstone spokesman John Ford.
- Bloomberg
www.theage.com.au/articles/2002/10/08/1034061204226.html
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-- Abraham Lincoln
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Last Update February 28, 2007, by The Catbird