WRAPUP 3-TXU agrees to be acquired for $31.8 billion

(Writes through)

By Jessica Hall

PHILADELPHIA, Feb 26 (Reuters) - Texas power company TXU Corp. TXU.N said on Monday it agreed to be acquired by a group led by private equity firms Kohlberg Kravis Roberts & Co. [KKR.UL] and Texas Pacific Group [TPG.UL] for $31.8 billion in the largest leveraged buyout in history.

The group will pay $69.25 per share for TXU, a 15.4 percent premium over TXU's closing stock price of $60.02 on Friday. The previous leveraged buyout record was the $25.1 billion takeover of RJR Nabisco, also by KKR, completed in 1989.

Including debt, the TXU deal is valued at $43.8 billion, according to research firm Dealogic.

The TXU deal could meet with resistance from politicians and environmentalists over rates and plans to build coal-fired power plants even though TXU has said it would cut the number of planned coal-fueled plants to 3 from 11 and implement 10 percent price cuts to save the average Texas household about $250 a year. The acquisition needs support of the state legislature,

"I'm not in favor of it. It's not in the best interests of Texans," said Texas Rep. Sylvester Turner of Houston, who added that Texas legislators should stop the deal.

"Private equity firms are not in the business of running companies for the long term," Turner said. "They make an investment, make it attractive, then flip it."

Coal-fired plants are among the United States' largest emitters of carbon dioxide, which many scientists say is a major contributor to global warming.

"The war is far from over," Tom Smith, director of the Texas office of advocacy group Public Citizen, told reporters on a conference call.

TXU said the deal, which faces an approval process of 6 to 9 months with the Nuclear Regulatory Commission, is expected to close in the second half of 2007.

While TXU said the acquisition does not need state regulatory approval, one investor said the Texas Public Utility Commission would closely watch it. Regulators in Maryland and New Jersey sidelined two power sector deals last year.

"Somewhere down the road there's going to be a reckoning with the regulators. The regulators will look at that kind of leverage with fairly unsympathetic eyes," said John Olson, who runs hedge funds for Houston Energy Partners.

KKR tried to buy Unisource in Arizona and Texas Pacific wanted Portland General in Oregon, but those deals were blocked by state regulators.

Utilities are attractive because of their steady cash flow.

Shares of TXU closed up $7.91, or 13.2 percent, at $67.93 on the New York Stock Exchange. It was the second-most active issue on the NYSE.