At $45 Billion, New Contender for Top Buyout
By ANDREW ROSS SORKIN and CLIFFORD KRAUSS
The biggest leveraged buyout ever is about to be surpassed. Again.
A group led by the private equity giants Kohlberg Kravis Roberts & Company and the Texas Pacific Group is near a deal to acquire the TXU Corporation, a Texas utility, for about $45 billion, according to people involved in the talks.
The amount of private money that is being offered is a huge financial endorsement of the company’s energy strategy. TXU has irritated environmental advocates by proposing to build 11 coal-fired power plants in Texas. Despite calls for regulating greenhouse gases, TXU has been the most aggressive in the power industry in pushing coal as the answer to growing electricity demands. Nationwide, power companies are planning to build about 150 coal plants over the next several years.
The deal itself, if approved at a TXU board meeting tomorrow, would be a landmark. It would exceed the Blackstone Group’s recent $39 billion acquisition of the office landlord Equity Office Properties, the largest buyout ever. And that would mean that Henry R. Kravis, a co-founder of Kohlberg Kravis Roberts, has managed to upstage, at least for the time being, his longtime rival in deals, Stephen A. Schwarzman, a co-founder of Blackstone.
Energy has been fairly recent territory for private equity. While energy deals accounted for 16 percent of all mergers last year, only 9 percent of those deals involved buyout firms, according to Thomson Financial. The first big foray came last year, when Kinder Morgan, the Texas pipeline giant that was created from some assets of the former Enron, was sold to a group that included Goldman Sachs, the American International Group, the Carlyle Group and Riverstone Holdings for $27.5 billion.
Awash in hundreds of billions of dollars, private equity firms, which raise money from pension funds and wealthy individuals, have taken on new targets in a buying spree. In 2006, private equity firms raised more than $174 billion for 205 funds, according to Thomson Financial.
Having just finished raising new supersize funds — K.K.R. and Blackstone are about to complete funds each worth more than $20 billion — and with banks and hedge funds willing to lend them money in record amounts with few restrictions or covenants, private equity has now begun to aim at even bigger prey ...full text