txu sold -- coal plants shelved

[hepkatmama]

[remember when u told me my dissenting opinion was kooky? rofl.]

http://www.bloomberg.com/apps/news?p...aqk&refer=home

Feb. 26 (Bloomberg) -- Investors led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group will buy TXU Corp., the largest power producer in Texas, for $45 billion in the biggest- ever leveraged buyout.

KKR, run by Henry Kravis and George Roberts, and David Bonderman's Texas Pacific, joined by Goldman Sachs Group Inc., will pay $69.25 for each TXU share, or 15 percent more than the Dallas-based power producer's closing price on Feb. 23, the companies said today in a statement. About $12 billion in debt will be assumed, TXU spokeswoman Lisa Singleton said.

Kravis and Roberts, both 63, upended the buyout world in 1989 with their $31 billion purchase of food- and tobacco-maker RJR Nabisco Inc. It was the largest LBO ever and remained so until November, when KKR joined in the $33 billion buyout of hospital chain HCA Inc. That deal was topped this month by Blackstone Group's takeover of Equity Office Properties Trust, the biggest U.S. owner of office buildings, for $39 billion.

``The general availability of money is driving all of these transactions higher and higher,'' said Todd Richey, a former investment banker with Banc of America Securities who now teaches finance at the University of California at Irvine's business school. ``Occasionally, there's hubris or irrational exuberance, but with the low cost of capital right now, there's lots of opportunities for big deals to be successful.''

Cash, Debt

The investors are providing $8.5 billion in cash and the rest of the deal will be debt, according to people familiar with the matter. Along with Goldman, Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley are also investing in the equity portion of the transaction.

Credit-default swaps on TXU debt soared, signaling that investors now consider the debt to be riskier. Contracts based on $10 million of TXU debt doubled today to $170,000, according to CMA Datavision in London. Credit-default swaps, which are based on corporate bonds, are used to speculate on a company's ability to repay debt.

Shares of TXU surged $7.73, or 13 percent, to $67.75 at 9:36 a.m. in New York Stock Exchange composite trading. The deal was first reported after the market closed on Feb. 23.

TXU can solicit rival bids through April 16. A breakup fee of $375 million for accepting a superior offer by that time will increase to $1 billion after April 16, according to a public filing today.

`Good Cash Machine'

TXU, after almost going bankrupt in 2002 because of a failed overseas expansion, has rebounded and may earn $2.6 billion in 2006, up 51 percent from a year earlier, according to the average of six analyst estimates compiled by Bloomberg. Natural-gas prices that more than tripled this decade have raised Texas power prices, making TXU's coal and nuclear plants more valuable.

The plants can produce more than 18,100 megawatts, and the company is also the largest electricity retailer in the state, selling power to more than 2.1 million homes and businesses. TXU owns a transmission business that could be sold to pay off debt used to fund the LBO.

TXU ``turned into a good cash machine,'' said Perry Sioshansi, president of Menlo Energy Economics, a consulting firm in Walnut Creek, California.

TXU said it will cut electricity rates by 6 percent within 30 days for residential customers who have not selected cheaper options from other power providers and another 4 percent after the expected closing in the second half of the year.

Closely held LBO firms use a mix of cash from investors plus their own funds and debt secured on the target they buy to finance their deals. They typically seek to expand companies or improve performance before selling them within five years.

Coal Plants Dropped

TXU Chief Executive Officer C. John Wilder has overseen an almost fivefold gain in TXU shares since taking over in February 2004. Wilder has returned TXU to a focus on electric generation and distribution in the Dallas region.

To help gain approval for the transaction, TXU and its buyers are agreeing to abandon eight of 11 coal-fired generators the company planned to build and support mandatory U.S. limits on power-plant pollution that contributes to global warming.

The buyout firms and Goldman approached the Natural Resources Defense Council and Environmental Defense over the past two weeks to negotiate the power plant agreement and gain support for the transaction. TXU also will devote $400 million to cutting power demand in Texas.

Cheap Power

Wilder's power plant expansion aimed to give the company more low-cost power to sell in the state's deregulated wholesale market. The prospect of increased pollution that could make smog worse in Houston and Dallas, and emissions of carbon dioxide, stirred opposition among environmentalists and mayors in the state.

Two proposed buyouts of utilities have failed in recent years, and two of the largest U.S. utility mergers have also been undone by opposition from state regulators and politicians.

Arizona state officials in December 2004 rejected the sale of UniSource Energy Corp., owner of the state's second-biggest utility, to a partnership backed by KKR along with J.P. Morgan Partners LLC and Wachovia Capital Partners. Oregon in March 2005 rejected a purchase of Portland General Electric by Texas Pacific.

KKR, based in New York, and Texas Pacific of Fort Worth, Texas, have been partners on earlier utility buyouts. In July 2004, the firms were part of a group that bought Houston-based Texas Genco Holdings Inc. for $3.65 billion. They sold the company, the second-largest power generator in Texas, to NRG Energy Inc. for $5.8 billion in February 2006.

Record Takeovers

Buyout firms announced a record of more than $700 billion in takeovers last year, and almost $50 billion so far this year, according to data compiled by Bloomberg. Investors, seeking returns that exceed stocks and bonds, poured a $432 billion into private-equity funds last year, also a new high, according to London-based Private Equity Intelligence Ltd.

That money is increasingly going into bigger deals. The average price of the 10 largest buyouts stood at $25.5 billion before the TXU deal was announced, Bloomberg data show. KKR, Blackstone, Texas Pacific, Carlyle Group and Bain Capital LLC each had a role in two of those transactions.

KKR, founded in 1976, is almost done gathering $16.6 billion for its latest U.S. fund. Past investments include Toys ``R'' Us Inc., Sungard Data Systems Inc. and VNU Group BV.

Texas Pacific was founded in 1992 by Bonderman, 64, James Coulter, 47, and Bill Price, 50. It raised $15 billion last year. It has invested in about 75 companies, including Burger King Corp. and Continental Airlines Inc.

[Deff Gordon]

not done quite yet. there is a shadow clause in there for them to be able to shop it.

[hepkatmama]

i'm just pleased people with money (since that's all anyone seems to pay attention to) are realizing there are alternative technologies. at least they have an open mind to options.

unlike some people who seem threatened by options.

[thumpcbd]

Originally Posted by hepkatmama

i'm just pleased people with money (since that's all anyone seems to pay attention to) are realizing there are alternative technologies. at least they have an open mind to options.

unlike some people who seem threatened by options.

LOL... You think TPG cares about anything other then $$$$ and really researching alternative energy resources you have another thing coming. They are an incredibly well run and they will be not researching nearly as much as you think they are. Typically, TPG just replaces a few top folks, or adds to their ranks a bit, but lets the company run itself. They just start taking a cut of the profits off the top and looks for ways to improve (read: get more $$$ out of) a company.

Casey

[hepkatmama]

i'll tell u a little secret. the reason txu has the debt it does is because the maintenance of the grid in texas isn't being funded correctly. honestly, its gonna take a cali or nyc style blackout before the ppl with $$ spend what is needed to drag the setup into this century.

what u guys don't know is that a large % of the electric providers in texas are rural co-ops. these ppl have such little $, that no big wigs want to buy them & offer them service. this also means that their transformers were purchased in the 50's & 60's during the Federal Rural Electrification Project and are so out of date that they are dangerous. transformer fires are no joke & u can't put them out with water. when these unstable things are online with the rest of the system it puts the whole state of texas in a bad way.

say what u want about new technology. but when i realize most of texas has inconsistent technology that is almost 50 years old, reinvesting in even more outdated technology at the plants isn't really a good plan.

come on ppl, its a brave new world. it may cost us more to make the transition, but we have to do it for the next generation. he||, u selfish ppl should do it for your old age & the young whippersnapper dr. that keeps u plugged in to that grid (yes yes i know there are backup generators in hospitals, i'm just saying....)

[PETA]

Buyer is stupid to go through with the deal unless they are getting a hell of a bargain

reason: http://en.wikipedia.org/wiki/Calpine

this energy provider will be emerging from bankruptcy soon and will offer a new stock release - it is a more diverse and larger company which will almost certainly offer greater value at a lower price... may even compete drirectly with TXU... blah blah blah

[Dionysos]

Originally Posted by hepkatmama

i'll tell u a little secret. the reason txu has the debt it does is because the maintenance of the grid in texas isn't being funded correctly. honestly, its gonna take a cali or nyc style blackout before the ppl with $$ spend what is needed to drag the setup into this century.

You mean like the ones Enron manipulated into happening, or legitimate blackouts?

[hepkatmama]

Originally Posted by Dionysos

You mean like the ones Enron manipulated into happening, or legitimate blackouts?

the only direct manipulation enron had on the blackouts is due to no money being put back into the system causing piss poor maintenance on the grid and stupid huge kickbacks to geo. bush's first presidential campaign.

and lets not forget the executive severence packages. living in houston suburbs is expensive when u have to pay your yacht slip rent too. poor poor rich ppl.

enron's biggest hypocrisy was taking money off the books to waste on bad politics & hookers or something. if they had stolen those millions to pay for upgrading the grid or transmission lines or transformers or anything philanthropic (i.e. civic minded) i might stop hating them.

[matt]

damn. hepkat is spitting knowledge in this thread.

[Dionysos]

Originally Posted by hepkatmama

the only direct manipulation enron had on the blackouts is due to no money being put back into the system causing piss poor maintenance on the grid and stupid huge kickbacks to geo. bush's first presidential campaign.

and lets not forget the executive severence packages. living in houston suburbs is expensive when u have to pay your yacht slip rent too. poor poor rich ppl.

enron's biggest hypocrisy was taking money off the books to waste on bad politics & hookers or something. if they had stolen those millions to pay for upgrading the grid or transmission lines or transformers or anything philanthropic (i.e. civic minded) i might stop hating them.

Suze, did you hear the audiotapes of the energy brokers at Enron calling the plant managers & telling them to shut down plants for "maintenance"? Several of the rolling blackouts were caused by these sorts of things. There was a level of direct manipulation in California well beyond what you're speaking of, and it's a matter of public record.

[matt]

yepper, saw that on the enron documentary.

[hepkatmama]

did u know when u transition to new technology
it might cost u a couple extra dollars
&&&&& u have to shut down the plant for maintenance?

u also have to shut down plants if there are fires & things.

i am sorry that moving into the future might mean a brief intermission while things are switched over.

but no, i didn't hear the audio tapes or documentary... but i will. i'm interested in this topic because i used to work for a company that manufactured parts for transformers and trained service ppl all over the country.

so we had to fix & replace a lot of the melted bits from the cali blackout. but what do i know?

did the documentary give the ages of the equipment or more interesting what their capacity is vs. what they are actually pulling? these are pretty important.

but i hate enron & think it will be the scandal that is an extracredit on the history test one day. those guys are shadY.

power isn't free. the equipment it flows thru doesn't last forever. just like when u have to buy a new car cause your old one is a piece. its inconvenient & expensive. but it sure is nice to have something reliable.

[PETA]

Originally Posted by hepkatmama

but what do i know?

how to smack a drunk kid upside the head?

[Dionysos]

Originally Posted by hepkatmama

did u know when u transition to new technology
it might cost u a couple extra dollars
&&&&& u have to shut down the plant for maintenance?

u also have to shut down plants if there are fires & things.

i am sorry that moving into the future might mean a brief intermission while things are switched over.

but no, i didn't hear the audio tapes or documentary... but i will. i'm interested in this topic because i used to work for a company that manufactured parts for transformers and trained service ppl all over the country.

so we had to fix & replace a lot of the melted bits from the cali blackout. but what do i know?

did the documentary give the ages of the equipment or more interesting what their capacity is vs. what they are actually pulling? these are pretty important.

but i hate enron & think it will be the scandal that is an extracredit on the history test one day. those guys are shadY.

power isn't free. the equipment it flows thru doesn't last forever. just like when u have to buy a new car cause your old one is a piece. its inconvenient & expensive. but it sure is nice to have something reliable.

I'm not saying you're wrong, I'm sure there's a ton of equipment that's in dire need of upgrading. But if you have a chance go check out the Enron documentary 'The Smartest Guys in the Room'. There's clips from those tapes of the power brokers telling plant managers to shut down power plants under the guise of 'maintenance' which would spike the price of electricity and Enron would make extra cash in the process. It was a direct manipulation that helped Enron's bottom line while simultaneously screwing the customers, and it rarely had anything to do with legitimate maintenance and/or upgrades.

[gatecrasher]

Pt of the Enron doc. It doesn't have the pt where they talk about the specifics of capacity vs. amount pulled.

http://www.youtube.com/watch?v=ANvV0j1xy5Y