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Sunday, February 25, 2007

TXU buyout: Unofficially official

By Pegasus News wire

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Bloomberg News is first to confirm that TXU Corp. accepted a $44 billion buyout offer from Kohlberg Kravis Roberts & Co. and Texas Pacific Group.

The buyout firms will pay between $69 and $70 a share, or almost $10 more than the closing stock price at the end of last week, and will assume about $12 billion in debt.

Part of the deal involves a suspension in TXU's plans to build coal-fired power plants in Texas, an agreement to cap emissions of greenhouse gases, and a pledge not to build coal-fired plants outside Texas.

C. John Wilder

C. John Wilder

Bloomberg quoted a person who asked not to be identified because the deal hadn't been announced. Whoever that Chatty Cathy is, he or she shared gory details with pretty much everyone regarding talks that went on this weekend between Kohlberg Kravis Roberts & Co. and Texas Pacific Group.

TXU chief executive C. John Wilder will have a small slice of the equity investment and will continue to run the company. TXU has taken heat because of his exorbitant salary. In 2004, he was paid $55 million, much of that in stock-related bonuses. Fort Worth House Representative Lon Burnam is filing a bill on Monday to put a cap on TXU's executive salaries.

Posted by T.G.

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Comments

kirk

kirk Anonymous

I would be extremely surprised if the fat lady has sung on this one.

I haven't studied TXU's corporate charter, but it would be highly unusual for a board to have carte blanche to accept a deal unilaterally. In order for the deal to be approved, the board usually has to recommend the transaction to a vote, but shareholders, ultimately, make the decision on whether to tender their shares to a prospective buyer. Institutional holders, who usually own north of 70 percent of most NYSE-listed stocks, can hold a great deal of sway in the matter ... especially if a single institution owns or controls a large percentage of the stock.

If another deal surfaces at a price greater than or terms better than the current offer, the board has the fiduciary duty to study it and determine whether it is a superior offer.

And on top of shareholder approval/agreement, TXU is going to have to get its regulators to agree to the transaction

2 years, 8 months ago ( Link to this comment | Suggest removal )

Mike Orren

Mike Orren Staff

Kirk, you have a point: http://www.nytimes.com/2007/02/26/bus...

It is unclear whether shareholders will agitate for a higher price from the investor group or push for other suitors to emerge. Several recent "go private" deals have drawn opposition from shareholders who expressed concern that they were being shortchanged.

Monday’s merger agreement allows TXU’s board to solicit bids from other potential buyers through April 16, and TXU said it intends to do so.

But I think the assumption is that this deal is so rich that others are unlikely to emerge.

2 years, 8 months ago ( Link to this comment | Suggest removal )

Gary Cohen Verified

I suspect the board will open this up to other bidders, putting this in Barbarian At The Gates territory. The board has a fiduciary duty to the shareholders to get the best deal possible for the shareholders, and not opening things up to other bidders may expose the board to liability.

If that is indeed the case, it will be interesting to see if other bidders emerge. I bet at least one more appears on the scene - someone will realize that KKR/TPG are getting a steal. Plus, there's ego in play here - there's a certain type of person/institution that loves to be involved in deals like this. They don't want to be left out of the action.

2 years, 8 months ago ( Link to this comment | Suggest removal )

kirk

kirk Anonymous

I am simply speculating, but it might be instructive to look at Blackstone's recent purchase of Sam Zell's Equity Office Property. (Disclosure: I used to work for Zell, but had no involvement in the recent EOP transaction.)

In EOP's case, Blackstone first offered $48.50 a share in cash, and the EOP board recommended that deal. Vornado Realty Trust then offered stock and cash totaling $52, later raising it to a $56 package. Blackstone countered with a final offer of $55.50 in cash. The board recommended the Blackstone deal -- due to the fact that it was all cash, and held a great deal of certainty of a quick close -- and shareholders accepted it very quickly thereafter.

In this case, it didn't hurt that Zell controlled close to a third of EOP's stock. But the bidding ended up producing 14% more cash for shareholders than the initial offer from Blackstone.

2 years, 8 months ago ( Link to this comment | Suggest removal )

David Goodspeed Verified

I see the first rumors of the deal were supposedly somewhere in the neighborhood of 45billion and now I see wfaa reporting it down to about 32billion with - who else - mayor laura miller getting plenty of face time. If she is not careful she is going to run this company (whoever it ends up being) out of town and we will be sending our utility bills to china or india (along with our tax dollars).

2 years, 8 months ago ( Link to this comment | Suggest removal )

David Goodspeed Verified

Mayor Miller also goes on to hold support for the new deal as the fewer coal plants will still only burn Texas lignite coal "the dirtiest burning coal on the planet" as she puts it. I was under the impression that the energy company was to import coal from their mines in Montana or wherever?

2 years, 8 months ago ( Link to this comment | Suggest removal )

Gary Cohen Verified

$32 billion in equity plus about $12 billion in assumed debt equals the $44 billion price tag.

2 years, 8 months ago ( Link to this comment | Suggest removal )

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