TXU to Set New Direction As Private Company
Public Benefits Include Price Cuts, Price Protection,
Investments in Alternative Energy and Stronger Environmental Policies
Dallas, February 26, 2007 – TXU Corp. (NYSE: TXU), a Dallas-based energy company, together with
Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG), two of the nation’s leading private
equity firms, and Goldman Sachs & Co., a leading global investment bank, announced today the execution of
a definitive merger agreement under which an investor group led by KKR and TPG will acquire TXU in a
transaction valued at $45 billion. GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley
intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be
offered $69.25 per share at closing, which represents a 25 percent premium to the average closing share price
over the 20 days ending February 22, 2007.
As a result of this transaction, the newly privatized company will deliver price cuts and price protection
benefits to electric customers, strengthen environmental policies, make significant investments in alternative
energy and institute corporate policies tied to climate stewardship.
Price Cuts and Price Protection
- 10 percent price decrease resulting in more than $300 million of annual savings for residential customers
- Price protection through September 2008
Stronger Environmental Policies and New Investments in Alternative Energy
- Planned coal-fueled generation units reduced from eleven to three, preventing 56 million tons of
annual carbon emissions
- $400 million investment in demand side management initiatives
- Transaction endorsed by Environmental Defense and Natural Resources Defense Council
- Increased commitment to exploring renewable energy sources and investing in alternative energy technologies
Corporate Leadership and Climate Stewardship
- Former U.S. Secretary of State James A. Baker, III will serve as Advisory Chairman to the investment group of new owners
- William Reilly, Chairman Emeritus of the World Wildlife Fund and former EPA Administrator, will
join board of directors and lead effort in making climate stewardship central to corporate policies
- Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University
of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden, will join the board of directors
- TXU will create an independent Sustainable Energy Advisory Board comprised of individuals who represent the following interests: the environment, customers, Texas economic development and ERCOT reliability standards
Reorganization into Three Independently Operated Businesses
- Three separate and distinct businesses: generation, transmission and distribution, and retail
- Headquarters will remain in the Dallas/Fort Worth area
The acquisition of TXU by the investor group will be accompanied by an environmental focus that will make
TXU a leader in conservation and energy efficiency, creating a fundamental change in the Texas electric
market. In addition, the company’s new strategic direction will seek to achieve top environmental
News Release
performance in the industry and greater involvement and dialogue with environmental, government and community leaders.
The private investor group’s long-term investment horizon allows TXU’s board, management and the
investor group to formulate a long-term strategy to meet TXU customers’ needs and to respond to the
significant energy challenges in Texas.
C. John Wilder, chairman and chief executive officer of TXU Corp., said, “This is a momentous event for our
company in our long journey to transform TXU from a former integrated monopoly to high performance
businesses. The new ownership and business structure will enable us to better meet the growing energy
needs of Texans. The long-term capital, expertise and resources of the investor group will allow us to
increase our focus on reliability, lower prices, outstanding customer service and innovative products, and
investments in long-term environmentally sound technology. TXU is a proud Texas corporate citizen, and
the company will continue to operate with the same commitment and dedication to serving Texas.
“KKR, TPG and the rest of the investor group are all world-class investors who bring valuable experience in
the industry. With these long-term and very informed investors, we can execute a new strategy that will
allow us to reshape TXU’s program to build new electric generation units,” Wilder continued. “Our new
strategy will meet two important objectives: addressing Texas’ immediate and future energy and reliability
needs; and doing so in a manner that responds to the desires of policy makers and other key stakeholders to
incorporate new technology advancements and conservation.”
Henry Kravis, founding partner of KKR, said, “TXU has outstanding employees dedicated to meeting the
increasing long-term energy needs of Texas. We have listened to the various TXU constituencies, including
customers, Governor Perry, Lt. Governor Dewhurst, Speaker Craddick, members of the Texas Legislature
and those expressing environmental concerns. As a result, we have developed a new vision with
management of how we can turn TXU into a more innovative, customer-centric, environmentally friendly
company, and we plan to work with management to implement it. Our experienced energy team looks
forward to providing strong support for this transformation, including making substantial, long-term capital
investments in new innovation across each business – from customer product and service offerings including
demand side management, to generation and grid technologies, and superior risk-management strategies.
We intend to hold this as a long-term asset, and we recognize the need to balance growth with
environmental considerations.”
David Bonderman, founding partner of TPG said, “With the support of the government and environmental
leaders, TXU’s new approach will better manage the delicate balance between the energy needs of a growing
Texas population, responsibility to the environment and the cost concerns of Texas businesses and residents.
We believe we’ve designed an innovative plan that meets the needs of all constituencies and reflects TXU’s
enhanced commitment to the shared goal of making Texas the most responsible, state-of-the-art electric
market in the nation. We look forward to working with TXU’s experienced management team and talented
employees in the years ahead to make this exciting vision a reality.”
Rich Friedman, Global Head of Goldman Sachs' Merchant Banking Division, said, “This transaction serves as
a model for long-term environmental stewardship. By investing in new technologies, encouraging
conservation and reducing carbon emissions and pollutants, TXU is on the path to being a 21st century
power company. We, together with KKR and TPG, are proud to have been able to play a constructive role in
the development of the significant environmental elements that help set this transaction apart.”
Price Cuts and Price Protection
As a result of this transaction, TXU Energy will provide more than $300 million in annual savings through a
10 percent price reduction for residential customers in its traditional service area who have not already
selected one of TXU Energy’s other lower-priced offers. Customers will begin receiving a 6 percent reduction
in approximately 30 days and an additional 4 percent reduction at the close of the transaction. This will
strengthen TXU Energy’s position as having the lowest prices among the major providers in their traditional
markets. An unprecedented level of price protection will be in place through September 2008, ensuring that these customers receive the benefits of these savings through two summer seasons of peak energy usage.
Furthermore, TXU Energy expects to aggressively compete state-wide to deliver benefits across all customer
segments.
Stronger Environmental Policies and New Investments in Alternative Energy
Planned Coal Units Reduced from Eleven to Three, Preventing 56 Million Tons of Annual Carbon
Emissions
This scale-back represents a 75 percent reduction in new coal capacity. In addition, the company is
committed to continuing its efforts to meaningfully reduce existing carbon emissions and seeks to join the
United States Climate Action Partnership (USCAP). USCAP is a broad-based group of businesses and
leading environmental groups organized to work with the President, the Congress and all other stakeholders
to enact an environmentally effective, economically sustainable and fair climate change program. As part of
the company's support for USCAP, TXU is also pledging to support the mandatory cap and trade program
to regulate carbon emissions.
To satisfy ERCOT's requirement for immediate additional capacity to meet the state's increasing electricity
demand, TXU expects to build two coal units at the Oak Grove site and one coal unit at the Sandow site.
TXU will immediately seek to suspend the permit application process for the other eight units and withdraw
them once the transaction closes. TXU does not intend to apply or reapply for permits to build additional
coal units utilizing current pulverized coal-fueled technology.
$400 Million Investment in Demand Side Management Initiatives
TXU will implement an aggressive demand reduction program through a $400 million investment in
conservation and energy efficiency activities over the next five years.
Transaction Endorsed by Environmental Defense and Natural Resources Defense Council
KKR, TPG and the investor group are committed to addressing TXU's environmental issues through
substantial new investments in research and demand side management initiatives and a 75 percent reduction
in planned new coal capacity. Recognizing this, key environmental groups are supporting the transaction.
Fred Krupp, President of Environmental Defense, said, “This is one of the most significant developments in
America's fight against global warming. Environmental Defense commends KKR and TPG for not only
dropping TXU's applications for eight proposed coal plants in Texas, but also for the many other
commitments they have made to reduce air pollution and global warming emissions, including their support
for a mandatory federal cap and trade program to regulate carbon emissions, doubling TXU’s expenditures on efficiency measures and their overall desire to rebuild TXU as a leader in the clean energy economy.
“The debate over this issue has been a top priority for Environmental Defense and we plan to work just as
hard with the new TXU to implement this agreement. We also look forward to working closely with TXU as
a member of its planned Sustainable Energy Advisory Committee and to settling our federal lawsuit against
TXU,” concluded Krupp.
“The NRDC fully supports this transaction and the new company's support for mandatory global warming
legislation. This turnaround marks the beginning of a new, competitive focus on clean, efficient, renewable
energy strategies to deliver the power we need while cutting global warming emissions,” said Frances
Beinecke, President of the Natural Resources Defense Council (NRDC). “It is a big step forward for the State
of Texas and for the American energy economy as a whole.”
Increased Commitment to Exploring Renewable Energy Sources and Investing in Alternative Energy
Technologies As a private company, free from the short-term financial pressures affecting all public companies, TXU will be able to accomplish important goals for customer service innovation and new generation technology
development on a scale and schedule that would otherwise not be possible.
The investor group is grateful for Governor Perry’s commitment to a long-term reliable supply of energy for Texas and his advocacy for investment in clean energy alternatives, such as IGCC. TXU is committed to the development and deployment of advanced technologies with a commitment to exploring IGCC’s potential to meet Texas’ reliability requirements. With the support of the Governor, the company is evaluating the dedication of an attractive site for the exploration of clean coal technologies and partnership with technology leaders.
TXU will reduce mercury (Hg) emissions, sulfur dioxide (SO2) and nitrogen oxides (NOx) by 20 percent
from 2005 levels, as previously committed, through reductions at existing units and installation of emission controls on the new Oak Grove and Sandow units.
TXU will reduce its own carbon emissions by increasing efficiency of its generating facilities by up to 2 percent.
TXU will become a leader in providing electricity from renewable sources by more than doubling its
purchase of wind power to more than 1,500 MW, maintaining its status as the largest buyer of wind power
in Texas. TXU will also promote solar power through solar/photovoltaic rebates.
The company also intends to join the FutureGen Alliance, a non-profit consortium of companies supporting
FutureGen, the U.S. Department of Energy project intended to create the world’s first near-zero-emissions fossil-fuel power plant.
Corporate Leadership and Climate Stewardship
Former U.S. Secretary of State James A. Baker, III Will Serve as Advisory Chairman to the Investment Group of New Owners
Secretary Baker brings an enormous amount of business experience, legal and political acumen, and leadership.
"One very important reason for my participation in this transaction is the serious and substantial
commitment to a new direction for TXU that takes into account my concerns about the environment," Baker
said. "Two years ago in my hometown of Houston, I said publicly that we need to pay more attention to
ways to protect our environment and that we needed to begin an orderly transition to cleaner energy. TXU's
new approach on these issues is a critical and responsible step in reducing Texas' contribution to climate
change. I look forward to advising the new owners of TXU in their efforts to foster a sustainable
environmental model that will permit responsible economic development and that will serve our state and
nation well."
William Reilly, Chairman Emeritus of the World Wildlife Fund and Former EPA Administrator, Will Join
Board of Directors and Lead Effort Making Climate Stewardship Central to Corporate Policies
To guide the adoption of corporate governance policies that tie the company's operations and goals to
environmental stewardship, former Environmental Protection Agency Administrator William Reilly will join
the board of directors.
Three Prominent Texans Will Join the Board of Directors
Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University of
Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S.
Ambassador to Sweden will join the board of directors.
TXU Will Create an Independent Sustainable Energy Advisory Board Comprised of Individuals Who
Represent the Following Interests: The Environment, Customers, Texas Economic Development and
ERCOT Reliability Standards
"To enable American energy independence and energy security, it is important to develop technologies that
utilize America's vast energy resources with technologies acceptable to the public. We look forward to
working with the new Sustainable Energy Advisory Board to develop energy solutions that meet the needs
of Texas," said Mike McCall, CEO of TXU Wholesale.
Reorganization into Three Independently Operated Businesses
Three Separate and Distinct Businesses: Generation, Transmission and Distribution, and Retail
With the long-term focus and investment enabled by these world-class investors and private ownership,
TXU can transform its operations into three independently managed businesses. This will better position
each business to focus on the unique customers that it serves. Consequently, these businesses will have
distinct names and separate management teams, headquarters and boards of directors.
- Generation: Luminant Energy will be the new company name, reflecting its new direction and
encompassing TXU's power, wholesale, development and construction businesses
- Transmission and Distribution: TXU Electric Delivery will be renamed Oncor Electric Delivery
- Retail: TXU Energy will retain use of its name for the retail business
Headquarters for each of the three businesses will remain in the Dallas/Fort Worth area.
Based upon the unanimous recommendation of the Strategic Transactions Committee comprised of TXU
independent directors, the TXU board of directors has approved the merger agreement and has
recommended that TXU's shareholders adopt the agreement.
Under the terms of the agreement, TXU shareholders will be offered $69.25 in cash for each share of TXU
common stock held. This represents a premium of 20 percent to the closing price of TXU shares on February
22, 2007, the last trading day before press speculation about the transaction, and a 25 percent premium to the
average closing share price over the 20 days ending on February 22, 2007.
The funding of the transaction will not result in new debt incurred at the regulated utility business.
After the transaction, the company's electric utility, generation, wholesale and retail electric activities will
remain under the same jurisdiction of the Public Utility Commission of Texas, Nuclear Regulatory
Commission and Federal Energy Regulatory Commission.
To avoid any future concerns regarding bidding in the wholesale market, the company intends to negotiate a
"safe harbor" agreement with regulators.
Under the merger agreement, TXU may solicit proposals from third parties through April 16, 2007. TXU's
board of directors, with the assistance of its independent advisors, intends to solicit proposals during this
period. There can be no assurances that the solicitation of proposals will result in an alternative transaction.
TXU does not intend to disclose developments with respect to this solicitation process unless and until its
board of directors has made a decision regarding any alternative proposals.
TXU, KKR, TPG and the rest of the investor group expect to close the transaction in the second half of 2007,
subject to receipt of shareholder approval and required federal regulatory approvals, as well as satisfaction
of other customary closing conditions. There is no financing contingency to the transaction.
The consortium of investment banks providing committed financing to the investor group in support of the
transaction includes Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley.
Credit Suisse Securities and Lazard acted as financial advisors to TXU in connection with the transaction.
Sullivan & Cromwell LLP and Cravath, Swaine and Moore LLP acted as outside legal advisors to TXU and
the Strategic Transactions Committee, respectively, in connection with the transaction.
Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley acted as financial advisors to
the investor group. Simpson Thacher & Bartlett LLP, Vinson & Elkins LLP, Covington & Burling LLP, Hunton & Williams LLP and Stroock & Stroock & Lavan LLP acted as legal advisors to KKR, TPG and the investor group.
Investor Call Webcast
TXU will host a conference call today to discuss this announcement with investors at 9:00 am EST. The dialin
number is (800) 309-0343 in the U.S. and Canada and (706) 902-0117 internationally, conference ID
1228130. The call will be webcast at www.txucorp.com. An audio replay of the call is expected to be
available on the website later in the day.
About TXU
TXU Corp., a Dallas-based energy company, manages a portfolio of competitive and regulated energy businesses
primarily in Texas. In the competitive TXU Energy Holdings segment (electricity generation, wholesale marketing and
retailing), TXU Energy provides electricity and related services to more than 2.1 million competitive electricity customers
in Texas. TXU Power has over 18,100 MW of generation in Texas, including 2,300 MW of nuclear and 5,800 MW of coalfired
generation capacity. TXU Wholesale optimizes the purchases and sales of energy for TXU Energy and TXU Power
and provides related services to other market participants. TXU Wholesale and its affiliate, TXU Renew, are the largest
purchasers of wind-generated electricity in Texas and fifth largest in the United States. TXU Corp.'s regulated segment,
TXU Electric Delivery, is an electric distribution and transmission business that uses superior asset management skills to
provide reliable electricity delivery to consumers. TXU Electric Delivery operates the largest distribution and
transmission system in Texas, providing power to three million electric delivery points over more than 100,000 miles of
distribution and 14,300 miles of transmission lines. Visit www.txucorp.com for more information about TXU Corp.
TXU will release its fourth quarter earnings tomorrow, February 27, 2007. In light of today's announcement, management is not planning to host a conference call to discuss the results.
About KKR
KKR is one of the world's oldest and most experienced private equity firms specializing in management buyouts, with offices in New York, Menlo Park, California, London, Paris, Hong Kong and Tokyo. Over the past 30 years, KKR has
invested in approximately 150 transactions with a total value of over $260 billion. KKR has extensive experience
investing in the energy sector. Prior investments include ITC Holdings, DPL Inc., Texas Genco and Union Texas
Petroleum. For more information, www.kkr.com.
About Texas Pacific Group
Texas Pacific Group (TPG) is a private investment partnership that was founded in 1992 and currently has more than $30
billion of assets under management. Headquartered in Fort Worth, with offices in San Francisco, London, Hong Kong,
New York, Minneapolis, Melbourne, Menlo Park, Mumbai, Shanghai, Singapore and Tokyo, TPG has extensive
experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts,
joint ventures and restructurings. TPG seeks to invest in world-class franchises across a range of industries. Prior
investments include Aleris International, Altivity Packaging, British Vita, Burger King, Continental, Denbury Resources,
Grohe, Kraton Polymers, MEMC, MGM, Neiman Marcus, Petco, Seagate and Texas Genco. Visit www.tpg.com.
About Goldman Sachs & Co.
Goldman Sachs is a global investment banking, securities and investment management firm. We provide a wide range of
services to a substantial and diversified client base, which includes corporations, institutional investors, governments,
non-profit organizations and individuals. Our headquarters is in New York and we maintain significant offices in
London, Frankfurt, Tokyo, Hong Kong and other financial centers around the world.
Forward Looking Statements
This release contains forward-looking statements, which are subject to various risks and uncertainties. Discussion of
risks and uncertainties that could cause actual results to differ materially from management's current projections,
forecasts, estimates and expectations is contained in the TXU Corp.'s filings with the Securities and Exchange
Commission (SEC). Specifically, TXU Corp. makes reference to the section entitled "Risk Factors" in its annual and
quarterly reports. In addition to the risks and uncertainties set forth in the TXU Corp.'s SEC reports or periodic reports,
the proposed transactions described in this release could be affected by, among other things, the occurrence of any event,
change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal
proceedings that may be instituted against TXU Corp. and others related to the merger agreement; failure to obtain
shareholder approval or any other failure to satisfy other conditions required to complete the merger, including required
regulatory approvals; risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger; the amount of the costs, fees, expenses and charges related to
the merger and the execution of certain financings that will be obtained to consummate the merger; and the impact of the
substantial indebtedness incurred to finance the consummation of the merger.
Furthermore, the proposed transaction (other than the merger) described in this release could be affected by, among
other things, the ability to profitably serve TXU Corp. customers given the announced price protection and price cuts; the
ability to fund the investments for the activities described in this release; delays in approval of, or failure to obtain, air
and other environmental permits for the Oak Grove units; the ability of TXU Corp. subsidiaries to resolve the consent
decree issue regarding the proposed Sandow 5 unit; the ability of TXU Corp.'s subsidiaries and their contractors to
attract and retain skilled labor, at projected rates, for planning and building the Oak Grove and Sandow 5 units; the
ability of TXU Corp.'s subsidiaries to manage the construction program for Oak Grove and Sandow 5 to a timely
conclusion with limited cost overruns; the challenges in increasing the efficiencies of TXU Corp.'s generation facilities;
the commercial viability of alternative energy sources (including clean coal technologies); the ability of TXU Corp. to
satisfy its commitments to successfully reduce emissions in a commercially reasonable manner; the availability of
electricity from renewable energy sources for purchase by TXU Corp.'s subsidiaries; and the commercial viability of any
future climate change program pursued by TXU Corp. Many of the factors that will determine the outcome of the subject
matter of this press release are beyond TXU Corp.'s ability to control or predict.
Additional Information and Where to Find It
In connection with the proposed merger of TXU Corp. with Texas Energy Future Merger Sub Corp., a
wholly-owned subsidiary of Texas Energy Future Holdings Limited Partnership (the "Merger"), TXU
Corp. will prepare a proxy statement to be filed with the SEC. When completed, a definitive proxy
statement and a form of proxy will be mailed to the shareholders of TXU Corp. BEFORE MAKING ANY
VOTING DECISION, TXU CORP.'s SHAREHOLDERS ARE URGED TO READ THE PROXY
STATEMENT REGARDING THE MERGER CAREFULLY AND IN ITS ENTIRETY BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. TXU Corp.'s
shareholders will be able to obtain, without charge, a copy of the proxy statement (when available) and
other relevant documents filed with the SEC from the SEC's website at http://www.sec.gov. TXU Corp.'s shareholders will also be able to obtain, without charge, a copy of the proxy statement and other relevant
documents (when available) by directing a request by mail or telephone to Corporate Secretary, TXU
Corp., Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201, telephone: (214) 812-4600, or from TXU
Corp.'s website, http://www.txucorp.com.
Participants in the Solicitation
TXU Corp. and its directors and officers may be deemed to be participants in the solicitation of proxies
from TXU Corp.'s shareholders with respect to the Merger. Information about TXU Corp.'s directors and
executive officers and their ownership of TXU Corp.'s common stock is set forth in the proxy statement
for TXU Corp.'s 2006 Annual Meeting of Shareholders, which was filed with the SEC on April 5, 2006.
Shareholders may obtain additional information regarding the interests of TXU Corp. and its directors
and executive officers in the merger, which may be different than those of TXU Corp.'s shareholders
generally, by reading the proxy statement and other relevant documents regarding the Merger, when filed
with the SEC.
Contact Information:
-
- TXU Corporate Communications:
- Lisa Singleton
- 214-812-5049
- TXU Investor Relations:
- Tim Hogan
- 214-812-4641
- Investor Group:
- Adam Levine
- 512-432-1760
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