Texas Pacific Group

  • 02 Jun 2008 at 9:21 AM

TPG Buys Stake of British Mortgage Company

It’s not just the Lone Star Funds going long mortgage companies. This morning Bradford & Bingley announced plans to raise 400 million pounds by selling a stake to buyout firm Texas Pacific Group. It’s part of the now familiar dance for finance companies, where they reveal craptacular earnings and attempt to soften the blow by revealing they are shoring up their balance sheets with an injection of new capital. So yeah, B&B also revealed that profits halved in the first four months of the year.
B&B had planned to sell a stake at around 82 pence per share. TPG is paying just 55 pence, indicating that investment appetite for the UK largest buy-to-rent mortgage company is still scarce. The deal is mightily dilutive for existing shares, which were down 23 percent this morning.

B&B sells 23 pct stake to TPG, redraws rights issue
[Thompson Financial via Forbes]

  • 30 Apr 2007 at 3:39 PM
  • KKR

TXU TV: We’re Not Going To Burn As Much Coal As We Planned

The video above comes from Texas Energy Future Holdings, the joint-venture partnership set up by Kohlberg Kravis Roberts and the Texas Pacific Group to fund their acquisition of the Texas energy company TXU. They also have a snappy, graphics laden website called TexasEnergyFuture.com.
We’ve run a lot of stories about the online public relations campaigns of Pirate Capital but until now haven’t touch on the phenomenon of political campaign style advertisements in the TXU deal.
We were wondering who was behind the turn to the public airwaves in order to win sympathy for the buyout. Unfortunately, we didn’t get very far in our inquiries with Texas Energy Future Holdings.
“The investors felt the need to let the public know about the transaction,” Jeff Eller told us twice when we asked about who planned the advertising campaign and how the idea was first hatched.
This morning’s Financial Times reports that Bonderman didn’t fare too well when confronted by Dallas mayor Laura Miller during a panel discussion at Milken Institute’s annual conference in Los Angeles.

In matters of substance, I would say that Mr Bonderman won on points. But Ms Miller and a member of the audience managed to rile him enough to concede a hostage to fortune. I concluded that the senior partners of private equity firms, who are under the spotlight around the world, still have much to learn about how to behave adroitly in public.

The turning moment of the discussion came, the FT reports, when Bonderman faced a question from an environmentally concerned audience member.

So why did he lose his cool when a self-righteous man from the audience demanded to know whether he felt an ethical responsibility to cease contributing to global warming? “You and others who are absolutists tend to be wrong almost always, in every event, at any time,” Mr Bonderman snapped back, promptly losing the audience’s sympathy.
It was an ingenue’s error. A smile lit up Ms Miller’s face and she said: “That was a really interesting answer.” No smart politician would have been caught losing his temper with a critic in that way, especially not on camera. As they have learned, in the age of YouTube, one reckless moment can doom them.
Like the male leads who clash with sparky women in Hollywood films, Mr Bonderman is charming but arrogant. I suspect that is true of the heads of other private equity firms. Who might not be with their stellar financial records? But it is no longer tactically wise to show it and the sooner they learn that the better it will be for them and their investors.

We hadn’t seen the video of the debate. So we asked Jeff Eller about it. Was it televised somewhere?
“It wasn’t a debate, it was a panel discussion, and to the best of our knowledge it wasn’t broadcast anywhere,” he said.
So was the “panel discussion” broadcast or not? Does anyone have the video? We haven’t been able to track it down anywhere. Send what you know to tips@dealbreaker.com.
Private equity needs more charm

  • 18 Apr 2007 at 12:27 PM
  • KKR

With Two Weeks Left In Go-Shop Period, TXU Says It Expects No New Bids

DAVID-BONDERMAN000 Wins.jpgIf the world seems a little bit brighter today that might be because you’re sitting somewhere near David Bonderman. The head of Texas Pacific Group is there in his suit—maybe it’s that wide-lapelled, sack-ish green number he likes to wear—his tie twisted, its front resting against his chest and its seam showing. (He’s not a slob but being Bonderman means having more on your mind than whether or not your tie rests just so.) And he’s probably smiling wide enough to throw light in a RIM blackout-sized radius. (Read: the whole western hemisphere.)
Texas power giant TXU Corp. has just announced that it is proceeding with plans to be bought out by Bonderman’s firm and Kohlberg Kravis & Roberts. Bonderman never really doubted the deal would go through but he had to smile when he got the news that with two weeks left in its “go-shop” period to look for other buyers, TXU was throwing in the towel and taking his bid. There was never much chance that serious rival bids would emerge for TXU. All those stories about Bonderman’s connections to the environmental groups supporting the buyouts, about behind the scenes deals with Texas lawmakers and regulators, no doubt sent the message to other private equity shops that
the fix was in. These guys had this deal wrapped up. No one else had the connections.
If that weren’t enough to stymie the ambitions of the Steve Schwarzman’s and Leon Black’s of the world, there were all the stories about resistance to the deal from greens, lawmakers and regulators. Who would want to step into that mess? The more trouble the TPG-KKR bid had, the less attractive the deal seemed to competitors. Worse was better.
In a sense it was all a bluff because the logic behind the TXU buyout has always been deceptively simple. The management of the power company had made itself too many enemies in Texas to succeed. It was partly bad public relations, partly a failure to build the right relationships, and partly an inevitable cost of running a power company in an age of rising energy prices, sprawling suburbs and growing environmental concerns. The management had become toxic.
A new management—under new owners—stood a chance to make the company work simply by not being the old guys. It was—it is—really that simple. The plan was to get rich by being someone else. In this case, by being David Bonderman.
TXU receives no superior offer and sticks with KKR [Reuters]

  • 08 Mar 2007 at 4:13 PM
  • KKR

We’re All Treehuggers Now?

tpgtreehuggers.comWhen Holman Jenkins penned his now famous column on the TXU deal, even we were stunned by the depth of his cynicism. He clearly thinks the “treehugger” alarm being raised by those wondering if the environmentalists had captured the private equity firms that were buying the texas energy giant is just plain naïve. Obviously no ideological group had captured KKR or the Texas Pacific Group. They were still following the ideology they had always followed—the ideology of making as much money as possible—it just required a bit of greenery this time around. Indeed, Holman wrote that it wasn’t only the environmentalists who might end up regretting making the deal—it also seemed against the interests of Texas residents and taxpayers, as well as TXU shareholders.

One wonders, for instance, what the green groups are expecting to receive, indirectly, for their endorsement? It quickly emerged that TXU already had intended to spike six of the planned coal plants. Noticed too was the fact that TXU enjoys considerable market power in Texas. What’s going to stop rates from rising in the future as Texas outstrips the available power supply, especially with heavy restrictions on new coal plants? Good question. And, for TXU shareholders, don’t you get the feeling that the political phalanx behind the deal is meant to deter another bidder from beating what is perhaps, under the circumstances, a lowball offer?

The only flaw that Holman saw with the private equity ploy to dress up as environmentalists was that it was so obviously phony.

Now we’ll find out if these shrewd private equity operators are really any better equipped to deal with a relentlessly more politicized business environment than public companies have shown themselves to be. Once the buzz from Monday’s razzle-dazzle has worn off, don’t be surprised if the answer turns out to be “no.”

Well, maybe Holman underestimated the genius of private equity. Today we learned that a group called Environmental Defense—who are supporters of the private equity buyout—have hired Perella Weinberg Partners to advise them on the deal. When you can convince the environmental groups to start paying investment bank advisory fees, well, that clearly means you really are equipped to deal with a politicized business environment.
So maybe the headline to this item really should be “we’re all clients of investment banks now.”
Update: One the other hand, DealJournal wonders if maybe representing Environmental Defense in the TXU deal is a sign that Perella Weinberg might be getting a little desperate.

Private Equity Says ‘Like Us!’
[Wall Street Journal]
Environmentalists hire banker for role in TXU deal [Reuters]

Who Wants To Be A Forty-Billionaire?

private-club.jpgBy now you’ve probably heard that Credit Suisse is reportedly offering to finance $40.2 billion to fund a competing offer for TXU, the Texas-based energy group which this week agreed to be bought by Kohlberg Kravis Roberts and Texas Pacific Group.
The Financial Times broke the story, following it’s lead-off sentence announcing the offer with this little bit of understatement:

The Swiss bank’s willingness to arrange the massive financing will eliminate a key financial obstacle to several private equity groups, including Blackstone and Carlyle, that are considering a rival offer.

That key financial obstacle being, uhm, having $40 billion to throw around. Cause we were going to pick up TXU until we saw the price-tag. We’re pretty well set with money these days but $40 billion is a bit steep even after that generous bonus DealBreaker paid out to its editors. So we decided to pass. But now that we know you can put it on lay-away, well that changes things.
So who wants to be a forty-billionaire? No-one, apparently.
Reuters reports from that big private equity conference in Germany:

The Blackstone Group 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.

Isn’t it totally amazing that someone in the government’s antitrust department might think these guys are colluding together and not competing to outbid each other on big deals. Sure, they all hang out in Germany and trade plans for the future. And no-one seems willing to grab the $40 billion that Credit Suisse has just dumped out on the table. But “collusion?” That’s stretching things.
And it’s not suspicious at all that Blackstone doesn’t want to put in a counter bid. It’s a lot of money, and Blackstone is noted for it’s conservative spending on acquisitions. Oh, wait…
So maybe Blackstone just doesn’t want to get into the Texas energy business. That must be it, right?

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.

So, you know, if Blackstone were invited into the club buying TXU they’d totally do it. But bidding against KKR and TPG? That would totally ruin the atmosphere of that big party they’re having in Germany.
Credit Suisse offers to fund rival TXU bid [Financial Times via MSNBC]
Blackstone unlikely to launch rival TXU bid-source

The pre-takeover announcement trading in TXU call options has lots of the usual suspects complaining that the other kind of usual suspects must have had inside information about the deal. “The only possible explanation is that there are leaks in these deal processes,” Whitney Tilson at T2 Partners and Tilson Mutual Funds in New York told Bloomberg.
But this story from the Dallas-Fort Worth Star Telegram makes clear that big shots at the Texas Pacific Group were going around to Texas officials and the relevant environmental groups making sure they wouldn’t get in the way of the deal. Actually, the suggests TPG’s chief is actually a tree-hugger himself.

When Texas Pacific Group chief David Bonderman sought help a couple months ago to get environmental groups behind Texas Pacific’s plan to buy TXU Corp., he called an old friend — former Environmental Protection Agency Administrator William Reilly.
They met in 1980, when Reilly headed the Conservation Foundation, a land-use organization that later merged with the World Wildlife Fund. Reilly needed legal help, and Washington, D.C., powerhouse legal group Arnold & Porter lent him Bonderman, Reilly said Monday.
Now Bonderman was asking Reilly to lead negotiations to win the support of two big environmental groups, Environmental Defense and the National Resources Defense Council, for the record $45 billion buyout of TXU by Texas Pacific and Kohlberg Kravis Roberts, another big private equity fund. Although the deal aims to make money, Reilly said Bonderman’s long-standing interest in the environment is also a driver.
“He’s for real on this stuff,” Reilly said. “He was in the Amazon two weeks ago. He was in Mozambique last year for a new marine reserve. These are not places to go if he’s looking to line his pockets,” he said.

We have no idea whether this is just TPG spin. But whether or not TPG really is run by environmentalists or just finds it profitable to pretend it is, it certainly tells you something about which way the political winds are blowing.

Two old friends, one goal: support of green groups

To the surprise of absolutely no-one, the trading volume on TXU call options was unusually high in the couple of days before the deal was first leaked to CNBC. We’re not saying it’s right that some folks who might have had inside knowledge about the deal might have traded on that knowledge while the rest of the market was in the dark. But we are saying that it strikes us as not exactly very likely that the very first person to know about a deal outside of TXU and its private equity acquirers, KKR and the Texas Pacific Group, would be CNBC reporter David Faber.
From the Wall Street Journal:

In what has become a familiar occurrence, some stock and option investors seem to have caught wind of TXU’s sale before news of it became public late Friday.
Shares of the Texas utility rose 4.1% Friday, before the deal was reported by CNBC after the market close. Meanwhile, the volume of TXU call options, which give investors the right to buy the stock, surged to 18,000. That is compared with average daily volume this month of about 2,400 contracts. Yesterday — when the company officially confirmed reports of its planned sale to private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co. — the stock rose an additional $7.91 to $67.93.
Some market watchers cried foul about the moves. Jon Najarian, a trader who tracks unusual activity for optionMonster.com, argued that volumes Friday were high enough that “certainly this information was widely distributed to get this many people reacting to it.” Though some traders may have been anticipating the company’s earnings release due tomorrow, Mr. Najarian argued that probably doesn’t account for all of Friday’s activity.

Unusual Activity Precedes TXU Buyout
[$$} {Wall Street Journal]