AFL-CIO says supports TXU buyout by TPG, KKR group

NEW YORK, Aug 20 (Reuters) - The largest American labor federation, the AFL-CIO, said on Monday it supports the buyout of Texas power company TXU Corp. TXU.N by an investor group led by private equity firms Texas Pacific Group (TPL.N) and Kolhberg Kravis Roberts & Co. [KKR.UL]

In a letter to investors, the AFL-CIO said that the $69.25 per share offer for TXU is a 25 percent premium over the share price before the announcement. It added that shareholder returns will be greater if they vote for the deal rather than against it.

The union group pointed out that TXU shares are trading well below the offer price, implying that the market is factoring in that the buyout transaction may not be completed and that the stock could fall.

The AFL-CIO also said shareholder opposition to the offer seemed unlikely to improve the deal terms, given the recent turmoil in the debt and credit markets, which have made it difficult to raise money for leveraged buyouts,

Money manager Franklin Resources Inc. (BEN.N), TXU's largest shareholders, said on July 24 that it would vote against the $32 billion buyout bid for the Texas power company because the offer price is too low.

The AFL-CIO members are also TXU shareholders through their pension and other retirement investments.

TXU shares were up 64 cents, or 1 percent, at $64.14 in morning New York Stock Exchange trading. (Reporting by Caroline Humer)