KKR, Texas Pacific set record with $45b TXU buyout accord
Henry Kravis, whose 1989 takeover of RJR Nabisco Inc. rewrote the rules of leveraged buyouts, set a record yesterday with his firm's $45 billion agreement to buy Dallas-based power producer TXU Corp.
Kohlberg Kravis Roberts & Co. and partner Texas Pacific Group are the first to crack the $40 billion-mark for LBOs, a milestone that rivals such as Blackstone Group LP will try to pass. To get there, KKR and Texas Pacific negotiated concessions to win the support of environmental groups before the deal was approved by TXU's board.
The KKR-Texas Pacific Group, joined by Goldman Sachs Group Inc., will pay $69.25 for each TXU share, 15 percent more than the closing stock price Feb. 23, the companies said. About $12 billion in debt will be assumed, a TXU spokeswoman said.
TXU can solicit rival bids through April 16. A breakup fee of $375 million for accepting a superior offer by that time will increase to $1 billion after April 16, according to a public filing yesterday.
"It's very likely that there's going to be interest," TXU chief executive C. John Wilder said yesterday on a conference call. "It's also very likely that if an investor group wanted to make a serious proposal that there would be the access to capital that they would need to pull this transaction off."
Kravis, 63, is under pressure to make ever-larger deals after raising more than $16 billion for KKR's latest fund. Only the largest takeovers have the potential to generate the 20 percent-plus returns that investors expect. Four investment banks will put their own money into the deal.
"I've never seen so much money being thrown at deals," Fred Joseph, managing partner of Morgan Joseph & Co. in New York and former chief executive of Drexel Burnham Lambert Inc., said yesterday. 