- The Washington Times - Sunday, February 25, 2007

DALLAS (AP) — Private-equity firms trying to buy TXU Corp. have agreed to drop plans for most of the utility’s proposed new coal-fired power plants in Texas if the deal goes through, according to people familiar with the situation.

The new buyers would also support a mandatory national program to cap emissions of greenhouse gases and pledge not to build coal-fired plants outside Texas, the people said. They spoke on the condition of anonymity because the sale was not final.

Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group were in advanced talks yesterday to buy TXU for about $32 billion, or about $70 per share, plus the assumption of TXU debt. It would be the largest private-equity acquisition ever.

Wall Street expects TXU, the largest producer of electricity in Texas, to report this week that it earned more than $2.5 billion last year.

TXU’s board was expected to meet yesterday to consider the offer, and an announcement was possible today, said people close to the deal.

An obstacle to a TXU sale has been the company’s proposal to build 11 new coal-fired power plants in Texas. Environmentalists and civic leaders in some cities, including the mayor of Dallas, are fighting the company’s plans.

The Natural Resources Defense Council said the new buyers have agreed to withdraw permit applications for eight of the proposed 11 coal-fired plants and decline to propose new coal plants outside Texas. The group said TXU would also support mandatory nationwide caps on emissions linked to global warming and a system of trading credits for cutting emissions, called cap and trade.

People close to the deal confirmed the outlines of the group’s claims.

KKR and Texas Pacific declined to comment. TXU officials did not return phone calls for comment.

TXU’s coal play was already in trouble. Last week, a state court judge blocked Texas Gov. Rick Perry’s order to speed up the process of gaining permits for six plants. Hearings on the proposal were delayed four months, until June 27.

According to people close to the situation, the buyout firms approached environmental groups and a few Texas legislators in the past week with a plan for making the deal palatable.

“Certainly, the sponsors were conscious of a large audience beyond just the [TXU] shareholders,” said one of those with knowledge of the process.

David Hawkins, director the Natural Resources Defense Council’s climate center said the buyers’ pledge marks “the beginning of the end of investments in old-fashioned coal plants.” He said strategies for fighting global warming were crucial for success in the electricity industry.

If the deal for TXU goes through, it would become the largest private buyout ever, topping the $25.1 billion that KKR paid for RJR Nabisco Inc. in 1988.

Shares of TXU soared in after-hours trading Friday, when news of the offer leaked out. The shares closed regular trading at $60.02, up $2.38, or 4 percent on the New York Stock Exchange.

At that price, TXU has a market value of about $27.5 billion, far higher than late 2002, when the shares sank to about $5 apiece.

The company responded by selling off troubled units in Europe and Australia and getting out of the natural-gas business to focus on producing and selling electricity to 2.3 million customers in Texas.

Besides the coal controversy, TXU has also been under attack from consumer groups and legislators over high rates and compensation paid to its chief executive, C. John Wilder, who was hired in 2004.

TXU lost $386 million that year but paid Mr. Wilder $55 million, mostly in stock-related bonuses that kicked in as the company’s shares soared. TXU returned to profitability in 2005, earning $1.72 billion.

The company is scheduled to report its final 2006 results tomorrow, and analysts surveyed by Thomson Financial expect it to post a profit of $5.54 per share, or more than $2.5 billion. Forecasts call for only slightly smaller gains in each of the next two years.

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