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Report Slams TXU LBO

Consultant Roger Gale concludes that the TXU leveraged buyout does not provide inherent or long-term advantages to the customer.

Fortnightly Magazine - August 2007

because of poor market conditions or balking investors. And adding to the challenge of financing the deal, some believe the TXU buyers may have to pay more. On June 1, Citigroup analyst Greg Gordon released a research note that suggested the possibility that KKR and TPG Capital would have to raise their $69.25-a-share buyout offer for the Texas utility to get the deal done. (At press time, the stock was at $67.40.) At $32 billion, the deal already was the biggest proposed leveraged buyout in history.

According to a Wall Street Journal analysis, a number of analysts and investors believe that, based on how comparable utilities trade, TXU is worth more. “That has helped narrow the annualized spread between the offer and the current TXU share price to 6.5 percent from 14 percent in the past five weeks,” the report states.

According to Citigroup, that’s not a lot for a deal that isn’t expected to close for six months. That’s probably why KKR and TPG may have to bump up their offer, perhaps to $71 per share, Citigroup concluded.

TXU has yet to file the proxy statement for the deal that will set a date for the shareholder vote on the transaction, but according to Gordon, the vote could take place in August or September. The analyst points out that an affirmative vote of two-thirds of TXU’s shares will be needed.

But if the Texas PUC commissioners are Dallas Morning News readers, the deal may end up being about more than just money.