Kohlberg Kravis Roberts & Co is poised to buy Texas utility owner TXU Corp in the biggest-ever leveraged buyout.
The board of Dallas-based TXU is set to vote on the proposal this weekend, said a person familiar with the deal who declined to be named.
Texas Pacific Group may be part of the acquisition, according to the Wall Street Journal, citing unidentified sources. The possible TXU sale was previously reported by CNBC.
The purchase price is not yet final, the source on TXU said. Shares of TXU surged as high as US$70 in after-hours trading, valuing the company at about US$32 billion.
With TXU's US$16 billion in debt, the transaction may be worth more than US$48 billion.
Blackstone Group LP's purchase this month of Equity Office Properties Trust for US$39 billion, including debt, was the largest previous buyout.
Any sale of TXU, the largest power producer in Texas with more than 18,300 megawatts, would need the approval of the Texas Public Utility Commission. The company is also the largest electricity retailer in the state, selling power to more than 2.2 million homes and businesses.
Texas deregulated its power industry in 2002.
Wholesale electric generation in the state is also competitive, along with retail sales of power. The transmission and distribution or "wires" business remains regulated. TXU has all three operations.
"It's important to remember that we have had two private equity buyers turned down by state utility commissions," said Tom Burnett, director of research at Wall Street Access in New York, who tracks acquisitions. "A lot of these state agencies frown on the extra leverage placed on these assets by the private-equity groups."
Closely held buyout firms such as KKR use a mix of cash from investors plus their own funds and debt secured on the target they buy to finance their deals.
They typically seek to expand companies or improve performance before selling them within five years to other funds or investors in initial public offerings.
The largest LBO before Equity Office was the US$33 billion purchase in November of hospital chain HCA Inc by Bain Capital LLC, KKR, Merrill Lynch & Co and HCA co-founder Thomas Frist Jr.
That topped the US$31.3 billion that KKR paid in 1989 for RJR Nabisco Inc.
Private equity firms reported a record of more than US$700 billion in takeovers last year and almost US$50 billion so far this year, Bloomberg data show. Investors, seeking returns that exceed stocks and bonds, poured US$432 billion into buyout funds last year, also a record, according to London-based Private Equity Intelligence Ltd.
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