UPDATE 3-TXU recommends merger approval, CEO may leave
(Adds background on Wilder, updates terms of severance)
NEW YORK, July 25 (Reuters) - TXU Corp.TXU.N on Wednesday urged shareholders to vote for its planned $32 billion buyout, despite opposition from its largest shareholder, and said Chief Executive John Wilder would resign once the deal closed.
TXU in proxy materials filed with the U.S. Securities and Exchange Commission defended the $69.25-per-share offer from a private equity group led by Kohlberg Kravis Roberts & Co.[KKR.UL] and Texas Pacific Group [TPG.UL].
The filing came one day after money manager Franklin Resources Inc. (BEN.N), the Texas power company's largest shareholder, said it would vote against the proposed buyout because the offer price was too low.
Franklin Resources, which owns a 4.35 percent stake, said that it believed TXU's stock would have performed better during the months since February, when it agreed to the buyout, if there were no deal. The company was not immediately available for comment on Wednesday.
TXU in the filing said $69.25 per share represented a "meaningful" premium to its stock price and the stock would probably not have done better without the deal, the largest leveraged buyout in history.
TXU shares were off 14 cents at $66.54 in afternoon New York Stock Exchange trade.
The Texas power company also said Vice Chairman Tom Baker would retire at the completion of the deal and set Sept. 7 as the date for shareholders to vote on the planned transaction.
The company said Wilder would remain chairman and CEO if the sale did not close. If the transaction did go forward, former U.S. Commerce Secretary Donald Evans would serve as nonexecutive chairman. TXU has not named a new CEO to succeed Wilder.
Wilder's potential departure had been widely speculated upon after TXU said that he had no agreement with investor groups to remain with the company once the deal closed.
Wilder would get a severance package worth $10.5 million as well as about $80,000 in other payments on top of $277 million in stock if the deal closed, TXU said in the filing.
Wilder, formerly chief financial officer at New Orleans-based Entergy Corp. (ETR.N), moved to TXU after serving in February 2004 as the company was reeling from losses at its European subsidiary. He immediately went to work to transform the 100-year-old utility into a high-performance industrial company, shaking up managers and installing new work procedures.
Wall Street praised Wilder's action to cut losses by selling foreign and natural gas-related operations and focus on electric generation in Texas, and its stock soared to all-time highs as profit rebounded.
Wilder's popularity with Texans, however, began to sour with his 2006 plan to double TXU's coal-fired generation by building 11 coal units. The $10 billion coal-build program also angered environmental groups, mayors and legislators concerned about worsening air quality in the state.
TXU DEFENDS PRICE
In defending the deal to shareholders, TXU said the value of the company has been helped by higher natural gas prices, but additional value has been held back by hedges that mitigate the effect of those gains.
Power prices in Texas move with natural gas prices, but many of TXU's power plants run on cheaper coal, enabling the company to benefit from the difference in price.
TXU said that it had conducted its "go-shop" process, in which it sought out other suitors, while natural gas prices were rising, which should have allowed other potential buyers to produce a bid higher than $69.25 per share if possible.
It also said that the regulatory climate for deals had become less favorable in Texas than had been believed when it had signed the deal. Possible regulatory actions could offset future higher natural gas prices, it said.
In addition, TXU said that a downturn in the leveraged debt markets and an increase in interest rates would make it more difficult for other possible buyers to arrange financing for a transaction above $69.25 a share. (Reporting by Caroline Humer, Eileen O'Grady in Texas and Jessica Hall in Philadelphia)
