TXU shareholders OK $32 billion buyout

DALLAS (Reuters) - Shareholders of TXU Corp TXU.N approved a $32 billion buyout on Friday, putting Texas' largest power company in the hands of private equity firms.

Approval of the transaction, by 74 percent of the company's outstanding shares, turns up the pressure on banks that could be left holding the debt behind the deal.

Dallas-based TXU agreed earlier this year to be bought by Kohlberg Kravis Roberts & Co KKR.UL and TPG Capital LP TPG.UL for $69.25 a share in the second-largest leveraged buyout ever. TXU shares were trading at $67.40, up 8 cents, on the New York Stock Exchange.

"This transaction is not only good for TXU shareholders, but also for TXU customers and residents across the state," said Donald Evans, the former U.S. secretary of commerce who will lead the company after the deal is finalized in the fourth quarter.

Friday's approval was widely expected after major shareholder Franklin Resources Inc. reversed course last week and said it would support the buyout.

The vote ratchets up the pressure on the group of banks that agreed to provide more than $37 billion in debt financing for the deal. The dismal state of the credit markets has made it far more difficult to sell that debt to other investors.

"I think there's a lot of people involved in this deal who wish they weren't," said debt analyst Jon Kyle Cartwright of investment firm BOSC Inc.

Of that debt, $26.1 billion is in senior secured debt securities, and up to $11.25 billion is in senior unsecured bridge facilities.

"The unsecured bridge facilities will undoubtedly be more difficult to sell down," Phillip Adams, senior investment-grade analyst at Gimme Credit, an independent research service, said in an e-mail.

The banks include Citigroup Inc (C.N), Credit Suisse (CSGN.VX), Goldman Sachs Group (GS.N), JPMorgan Chase & Co (JPM.N), Lehman Brothers LEH.N and Morgan Stanley (MS.N).

Major banks are holding more than $300 billion in leveraged buyout debt on their balance sheets. Wall Street is closely watching the financing of $26 billion that KKR has secured for its purchase of First Data Corp FDC.N as a litmus test of the health of the credit markets. That financing is expected to close later this month.

KKR and TPG set the financing earlier this year at what market watchers believed to be very favorable terms, but the debt market troubles could mean the banks may end up carrying much more of that debt risk than previously expected.

A spokesman for KKR would not comment on the debt financing for TXU.

The only remaining regulatory action needed for the deal is approval from the U.S. Nuclear Regulatory Commission to transfer ownership of TXU's Comanche Peak nuclear power station to the new owners.

And Texas utility regulators will hold a hearing in October on KKR's purchase of TXU's electric transmission and delivery unit, Oncor.

Under Texas law, the Public Utility Commission does not have authority to block the buyout. "The commission has made it clear that their authority is limited to Oncor," said PUC spokesman Terry Hadley.

To gain support for the buyout in Texas among lawmakers angered by rising power prices in the state's deregulated market, KKR persuaded TXU to cut its rates through the end of 2008 and scale back its controversial plan to build 11 coal-fired plants in North Texas.

The new owners will continue to face pressure from consumer and environmental groups over TXU's plan to build three new coal-fired units, which could increase emissions of carbon dioxide, blamed for global warming, and mercury.

"We will continue to try to work with KKR and TPG to come up with solutions that don't cook the climate," said Tom Smith, director of Public Citizen in Texas.

TXU Chief Executive C. John Wilder, credited with transforming TXU and revitalizing its stock price in his three-year tenure, will leave the company once the deal closes. He will get a package worth $280 million, according to the company.

(Additional reporting by Matt Daily in New York)