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TXU sale could cost $32 billion

Sources say a deal for the utilities giant is expected to be the largest leveraged buyout ever.

February 24, 2007|Janet Wilson | Times Staff Writer

Private investment companies Texas Pacific Group and Kohlberg Kravis Roberts & Co. are close to a deal to buy Texas utilities giant TXU Corp. in what is expected to be the largest leveraged buyout ever, according to people familiar with the negotiations.

The sale, slated to be announced Sunday, will include "not only the acquisition, but some very major announcements related to global warming," one person told The Times.

The Wall Street Journal, citing unidentified sources, said on its website that the buyout firms were expected to pay about $32 billion, or about $70 a share.

Dallas-based TXU has been moving aggressively to build an additional 11 coal-fired power plants upwind of Dallas and elsewhere in the state.

Environmental Defense and numerous other environmental groups and civic leaders have sued or otherwise protested the plants, saying they would add 78 million tons of greenhouse gases to the atmosphere annually. Texas already leads the nation in greenhouse gas emissions, widely believed to cause global warming. Smog, mercury emissions and other harmful pollutants also would be emitted.

Many private equity firms are jumping into solar, wind and other "alternative energy" investments, as dozens of states have adopted "renewable portfolio standards" requiring diversified energy, including so-called clean sources. Several members of Congress, including Sen. Dianne Feinstein (D-Calif.), have introduced or are preparing legislation that could cap greenhouse gases from coal plants and other electricity providers.

Fort Worth-based TXU lost a key legal round in building its new coal plants Tuesday when an administrative law judge threw out an executive order by Texas Gov. Rick Perry that fast-tracked environmental scrutiny of such plants. The next day, a state office about to begin air permit hearings on six of the proposed power plants instead postponed the hearings for four months.

Spokesmen for Texas Pacific and New York-based KKR declined comment. Calls to TXU were not returned.

Shares of TXU surged as high as $71 in after-hours trading, valuing the company at about $32 billion. The company has about $16 billion in debt, signaling the transaction may be valued at more than $48 billion.

Blackstone Group's purchase this month of Equity Office Properties Trust for $39 billion, including debt, was the largest previous buyout.

The possible TXU sale was first reported by CNBC.

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janet.wilson@latimes.com

Bloomberg News was used in compiling this report.

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