Record buyout for TXU

NEW YORK (CNNMoney.com) -- Texas utility TXU agreed to be taken private in a $45 billion cash-and-debt buyout early Monday, the largest private-equity deal in history.

The buyers include two of the largest private equity firms, Kohlberg Kravis Roberts & Co. and Texas Pacific Group, as well as the private equity arm of investment bank Goldman Sachs (Charts).

TXU Corp.'s Big Brown power plant near Fairfield, Texas. The utility agreed to drop plans to add eight of 11 planned coal-fired power plants as part of a deal to be bought by a group of private equity firms.

The buyers moved to quiet potential critics of the deal right off the bat by agreeing to scrap plans for eight of 11 controversial coal-fired power plants that TXU had sought. The move won endorsements from two key environmental groups that had been critics of the company's plans. They also promised lower residential electric rates and price guarantees for customers.

The group will pay $69.25 a share for the company, a premium of 15.4 percent over Friday's close. TXU (Charts) shares jumped about 13 percent in before-hours trading after the announcement.

The cash component of the deal is valued at $32.3 billion, when multiplying the per share price by 466 million diluted shares outstanding in the company's most recent report.

According to research firm Dealogic and Reuters,it would be the largest price paid by private equity firms, beating the $25.1 billion that KKR paid for tobacco and snack company RJR Nabisco Inc. in 1989.

And including assumed debt, the deal's value would top the recent record set by the $39 billion buyout of Equity Office Properties, in a deal agreed to just over three weeks ago after a bidding war for the office space owner.

TXU provides electricity and related services to more than 2.1 million customers in Texas.

TXU had been insisting that it needed to build 11 coal plants in the state, to meet growing needs for power in a state projected to add 6 million residents over the next decade.

But the proposal had brought an outcry from not only the environmental community but from some big city mayors in Texas, and the company faced long delays in its plans to add the plants. The need for regulatory approval would have given critics even more leverage to block the plants.

The announcement by TXU said the decision to drop plans for the eight plants should prevent 56 million tons of annual carbon emissions. The company also pledged to support the mandatory cap and trade program to regulate the nation's carbon emissions. And William Reilly, chairman emeritus of the World Wildlife Fund and former EPA administrator, will join the company's board.

Because of those announcements, the deal was endorsed by two environmental groups, Environmental Defense and Natural Resources Defense Council. And the agreement to likely clears the way for the three plants TXU still hopes to build.

Former Secretary of State James A. Baker III will serve as advisory chairman to the investment group of new owners.

The company will be split into three different units as part of the deal. One, which will handle power generation, will be called Luminant Energy.

Another, which will handle transmission and distribution of electricity, will be named Oncor Electric Delivery. The third, which will handle the company's retail electric business, will be called TXU Energy.

All three will continue to be based in Dallas.

The company said under terms of there deal there will also be a 10 percent price decrease for residential customers, which will result in more than $300 million of annual savings. And it promised price protection through September 2008.

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