TXU, the largest energy provider in Texas, agreed Sunday night to a $45 billion buyout that would not only be the largest private-equity deal in history but would also feature an unusual twist: The buyers have promised environmental groups they would cancel a slew of coal- fired power plants on the firm’s drawing boards.
The buyout firms’ deal with environmental groups, which could become a landmark in the battle over climate-change policy, would force an abrupt turnaround in the strategy of TXU, which has defied environmentalists’ and congressional criticism to expand coal use and carbon- dioxide emissions.
The environmental agreement was the idea of the private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts, which made it a condition of the acquisition, according to several sources involved in the negotiations, who gave details of the deal on condition of anonymity because it had not been announced yet.
Texas Pacific’s head, David Bonderman, is no stranger to creative deals in the energy sector or in the cause of environmentalism. He sits on the boards of the World Wildlife Fund and the Grand Canyon Trust. He was a key figure in negotiating with power plants in Arizona to reduce air pollution over the Grand Canyon.
If shareholders approve the acquisition, TXU would back federal legislation that would require reductions in carbon-dioxide emissions through a cap- and-trade system. It would shelve plans for eight of 11 coal-fired plants that current TXU executives had proposed for Texas and would drop plans to build new coal plants in Pennsylvania and Virginia. The company would also double its spending to promote energy efficiency, to $80 million a year, for five years.
“We think this is really a big deal, a watershed moment in America’s fight against global warming,” said Jim Marston, regional director of Environmental Defense in Austin, Texas, and who helped forge the environmental accord. The buyout firms also promised to cut TXU’s emissions of carbon dioxide to 1990 levels by 2020.
The board of TXU met Sunday to vote on the leveraged buyout, which would eclipse the previous record of $31.3 billion, paid for RJR Nabisco in 1989.
Sources involved in the negotiation said TXU’s assets – which encompass a retail business with 2.4 million customers; more than 50 generating plants, including a nuclear facility; and a power wholesale business – would not be split up if the deal gains approval from shareholders.
