Dallas, TX, Feb. 26, 2007 — TXU Corp., a Dallas-based energy company, together with Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG), two private equity firms, and Goldman Sachs & Co., the investment bank, announced the execution of a definitive merger agreement under which an investor group led by KKR and TPG will acquire TXU in a transaction valued at $45 billion.
GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be offered $69.25 per share at closing, which represents a 25 percent premium to the average closing share price over the 20 days ending February 22, 2007.
As a result of the transaction, the newly privatized company intends to deliver price cuts and price protection benefits to electric customers, strengthen environmental policies, make significant investments in alternative energy and institute corporate policies tied to climate stewardship.
The acquisition of TXU by the investor group will be accompanied by an environmental focus that is designed to make TXU a leader in conservation and energy efficiency. In addition, the company’s new direction will seek to achieve top environmental performance in the industry and greater involvement and dialogue with environmental, government and community leaders.
The private investor group’s long-term investment horizon allows TXU’s board, management and the investor group to formulate a long-term strategy to meet TXU customers’ needs and to respond to energy challenges in Texas.
C. John Wilder, chairman and CEO of TXU Corp., called the buyout “a momentous event for our company.”
As a result of the transaction, TXU Energy claims it will provide more than $300 million in annual savings through a 10 percent price reduction for residential customers in its traditional service area who have not already selected one of TXU Energy’s other offers. The company said customers will begin receiving a 6 percent reduction in approximately 30 days and an additional 4 percent reduction at the close of the transaction. Price protection will also be in place through September 2008, said the company.
TXU also said the 11 new coal plants they planned to build will not be built. Instead only three units will be built. The scale-back represents a 75 percent reduction in new coal capacity. The company also said it is committed to continuing its efforts to reduce existing carbon emissions and seeks to join the United States Climate Action Partnership (USCAP). USCAP is a group of businesses and environmental groups organized to work with the president, the Congress and all other stakeholders to enact an environmentally effective, economically sustainable and fair climate change program. As part of the company’s support for USCAP, TXU is also pledging to support the mandatory cap and trade program to regulate carbon emissions.
To satisfy ERCOT’s requirement for immediate additional capacity to meet the state’s increasing electricity demand, TXU expects to build two coal units at the Oak Grove site and one coal unit at the Sandow site. TXU will immediately seek to suspend the permit application process for the other eight units and withdraw them once the transaction closes.
TXU plans to implement a demand reduction program through a $400 million investment in conservation and energy efficiency activities over the next five years.
KKR, TPG and the investor group said they are committed to addressing TXU’s environmental issues through new investments in research and demand side management initiatives and a 75 percent reduction in planned new coal capacity. Recognizing this, some environmental groups are supporting the transaction.
As a private company, free from the short-term financial pressures affecting all public companies, TXU will be able to accomplish goals for new generation technology development.
TXU intends to provide electricity from renewable sources by doubling its purchase of wind power. TXU said it will also promote solar power through solar/photovoltaic rebates.
The company will also see some new faces in the management structure. Former U.S. Secretary of State James A. Baker, III will serve as advisory chairman to the investment group of new owners. William Reilly, chairman emeritus of the World Wildlife Fund and former EPA administrator, will join the board of directors to help corporate policies focus on climate stewardship. Three Texans will also join the board: Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, chairman of the University of Texas board of regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden.
With the long-term focus and investment enabled by the investors and private ownership, TXU is looking to transform its operations into three independently managed businesses:
* Generation: Luminant Energy will be the new company name, reflecting its new direction and encompassing TXU’s power, wholesale, development and construction businesses;
* Transmission and distribution: TXU Electric Delivery will be renamed Oncor Electric Delivery;
* Retail: TXU Energy will retain use of its name for the retail business headquarters for each of the three businesses will remain in the Dallas/Fort Worth area.
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