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Funds News

Blackstone unlikely to launch rival TXU bid-source

FRANKFURT, Feb 27 (Reuters) - Private equity firm Blackstone is unlikely to make a competing bid for TXU Corp. TXU.N, a source familiar with the situation said on Tuesday, quelling speculation that it may try to top the record-breaking $32 billion offer for the Texas power company.

TXU said on Monday it would be acquired by a group led by private equity firms Kohlberg Kravis Roberts & Co. [KKR.UL] and Texas Pacific Group [TPG.UL], but under the terms of the deal, it can solicit other bids until April 16.

The Blackstone Group [BG.UL] has no interest in putting together a rival bid for TXU, but it would consider an equity investment in TXU if the current buyout team needed an extra equity partner before the deal closed, the source said.

Although funds run by Blackstone have invested in the power sector, it plans to stand on the sidelines of any TXU bidding, the source said.

Asked earlier about the TXU deal, Chief Executive Stephen Schwarzman told Reuters “We’ll look at it if someone brings it to us,” speaking on the sidelines of the annual Super Return private equity conference, without clarifying further.

The source explained that Blackstone would consider an equity stake, but not a counter-bid.

Blackstone has invested in the past with KKR and TPG in a consortium that bought power generating company Texas Genco in 2004.

Several factors make potential rival TXU bids possible.

TXU management has not signed future employment agreements with KKR and TPG, making them neutral to a new suitor. The deal also has a low break-up fee of $375 million if TXU accepts a superior offer before April 16. The termination fee rises to $1 billion after that time.

One potential hurdle for a new bidder is the challenge of raising funding. Many big Wall Street banks already are tied to the TXU deal, either as investors or advisers, so that leaves only a handful of large potentential financiers: Deutsche Bank AG DBKGn.DE, UBS AG UBSN.VX, Merrill Lynch MER.N and Bank of America Corp. BAC.N.

Morgan Stanley MS.N, Citigroup C.N, Goldman Sachs GS.N, Lehman Brothers LEH.N and JPMorgan Chase & Co. JPM.N have committed financing to the KKR and TPG offer.

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