Private equity buys TXU in record deal

By Jessica Hall

PHILADELPHIA (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 investor 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, announced in 1988.

While the company said the deal does not require state regulatory approval, one investor said the state agency would be closely watching the deal. Regulators in Maryland and New Jersey sidelined two large 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.

Shares of TXU added $7.91, or 13.2 percent, to $67.93 in afternoon trading on the New York Stock Exchange. TXU was the second-most active issue on the NYSE.

Power generators are drawing renewed takeover interest as electricity demand in many parts of the country is expected to outstrip generation capacity in the coming years, pushing power prices higher.

Those bullish fundamentals have also boosted the value of power plants, many of which were nearly worthless in the severe market downturn of 2001-2002 when dozens of new plants came on line.

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