All big gifts come with some strings attached.
Late last week, TXU Energy was forced to disavow a regulatory filing due to objections from private equity buyers Kohlberg Kravis Roberts and Texas Pacific.
TXU gained notoriety this year when the largest-ever private equity buyout ($32 billion plus) was announced. Recently, TXU received a notice from the Texas Public Utility Commission of a proposed a $210 million penalty over allegations of manipulation of wholesale power prices in the summer of 2005.
The company made a filing last week objecting to the penalty that contained a statement that was interpreted that TXU might shut down some power plants if the penalty is upheld. KKR and Texas Pacific were not amused, said they had not been consulted about the filing and disagreed with it (their statement is here).
TXU CEO John Wilder acknowledged that the situation had been mishandled, although TXU denies any actual intent to shut down power plants.
If you had heard that a problem developed between a private equity buyer and a large regulated business, you’d think that the financiers were pushing too hard and were unsophisticated in the nuance of the utility business.
And in this case you’d be wrong. Not only do KKR and Texas Pacific apparently “get it,” they also took the lead when the deal was announced to agree to build fewer new coal plants, gaining support from environmental groups. The closing of the firms’ statement reads:
“We don’t own the company. The more quickly this transaction can be completed, the sooner that TXU can set a different course and a new direction, one that encourages open and productive dialogue with regulators, elected officials and other stakeholders.”
The very least that the promise of $32 billion should get you is a look at a draft of a regulatory filing…