• 31 Jul 2007 at 9:30 AM
  • Banks

TXU Lenders Do The Math

Funding a $37 billion buyout isn’t what it used to be, especially since debt on recent buyouts is losing up to 10% in value, sticking lenders with hefty losses. The lenders led by Citi and including Lehman, JPMorgan, Goldman and Morgan Stanley are considering paying a $1 billion break-up fee so that everyone can quietly walk away.
The proposed KKR, TPG and Goldman PE buyout of TXU calls for $30 billion of term loans and $11 billion in an unsecured bridge loan. Sharing a $1 billion loss is better than sharing a potential $3.7 billion loss (several analysts worked a 120 hour week to compute that). The banks are clever like that, at least in hindsight after offering such huge financing packages for these PE deals.
Thomson Financial reports that there is $300 billion worth of unfunded buyout debt currently threatening numerous impending PE deals like First Data.
Lenders mull pulling out of TXU and pay 1 bln usd break-up fee [Thomson Financial via CNN Money]

Credit Suisse Banker Charged With Insider Trading

Insider-trading-ticker.jpgYesterday federal prosecutors charged Hafiz Muhammad Zubair Naseem, a Credit Suisse investment banker, with insider trading. He is accused of tipping off a banker in Pakistan with information about nine corporate acquisitions, including the TXU buyout.
It appears that Naseem was more or less a full-time insider trading professional, using his position—as well as his office phone—at Credit Suisse to obtain information about deals and leak them to his foreign contact from the very start. The SEC says he began his lawbreaking “[i]immediately upon obtaining employment at Credit Suisse in March 2006.”
But he doesn’t seem to have been especially clever about it. This wasn’t an elaborate system of dead-drops, or tips passed along through cut-outs. Naseem was simply calling his banker-buddy in Pakistan with the information. Did he really think he’d get away with that for very long? Apparently the answer is yes.
The good news is that Credit Suisse seems to have played a role in catching him. “We immediately brought the activities of this employee to the attention of the relevant authorities,” the Swiss bank said in a statement. Since this type of insider trading is basically theft from his employers and clients, it is good to see that Credit Suisse apparently helped uncover his alleged activities.
Naseem is 37 years old, and a Pakistani national. He worked for the Global Energy Group at Credit Suisse. In addition to TXU, Naseem is accused of passing along tips involving Hydril Co., Trammell Crow Co., John H. Harland Co., Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands Inc., Caremark Rx Inc. and NorthWestern Corp. He is charged with one count of conspiracy and 25 counts of securities fraud.
Credit Suisse Employee Arrested, Charged With Insider Trading [Bloomberg]

  • 01 May 2007 at 10:05 AM
  • TXU

He [Wilder] Was Planning It All Along!

john_wilder_callout.jpgSome of you may have lost sleep over that bit in Opening Bell this morning (yes, the highly prized 9:30 am-10 am nap), about TXU chief executive John Wilder getting a whopping $280 million upon the completion of the TPG buy-out. You were probably worried that TXU was going on one of its annual Let’s Stuff Money in Paper Bags and Light It On Fire-type spending sprees, were you not? Well worry no longer: turns out the Texans are actually quite stingy, particularly when it comes to their commander in chief. Deal Journal reports that Wilder’s bonus for 2006 was a measly $1.6 million bonus. And why was Wilder awarded less than Blankfein spent on sheets during the calendar year? Apparently, he only has himself to blame. The company noted in its SEC filing that “While [TXU] delivered record earnings per share and operating cash flow results in 2006, the company fell short of its incentive funding metrics relative to challenging goals approved by the Organization and Compensation Committee.” Basically, Wilder should take a long hard look in the mirror and think about what he’s done (or hasn’t done).
Or should he? The best part of this whole thing is that Wilder’s compensation is apparently low because the company failed to meet performance goals, and it was this under performance that hurt the share price and made TXU an inviting target for KKR-TPG. Enter: the $280 million. Fishy, indeed.
Wilder’s Barely Passing Grade at TXU [Deal Journal]

  • 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

  • 27 Apr 2007 at 1:12 PM
  • TXU

TXU Wars

From the looks of this video, things are heating up in Texas. The Star Wars credit sequence-style video seems to be aimed at pressuring the Texas legislature to oppose the buyout of the energy company TXU by KKR and the Texas Pacific Group. And it doesn’t pull its punches, comparing the deal to another famous Texas energy concern, Enron.

  • 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]

The first suspects have been named in the SEC’s investigation into the insider trading that is alleged to have occurred in the days leading up to the announcement of the giant TXU buyout deal. The Guardian reports on the husband and wife named by the SEC. No details yet on how they allegedly obtained the inside information.

Sunil Sehgal, director of a Wembley-based IT firm, Transputec Computers, and his wife Seema are the first people to be named in an investigation by the Securities and Exchange Commission , the Wall Street regulator, into unusual dealing in the run-up to TXU’s takeover in February. The SEC says there were “highly suspicious purchases of speculative call options” in TXU, partly made through the London branch of the investment bank UBS, yielding profits of $5.3m for an unknown number of people involved.

And today’s big First Data takeover? Deal Journal reports that there were lots of “funky movements” in the options and credit default swaps. More trouble ahead.

British couple named in US insider deal inquiry

  • 19 Mar 2007 at 9:07 AM
  • TXU

Crashing the TXU Party: Blackstone, Carlyle and Hellman & Friedman

txu_map.gifPrivate equity firms Blackstone, Carlyle and Hellman & Friedman are considering a bid for TXU, the Texas energy company which accepted a buyout bid from rival private equity groups Kolbert, Kravis & Roberts and the Texas Pacific Group. The Financial Times broke the story early this morning, and later it was confirmed by a Reuters source.
From the FT:

A consortium of leading private equity groups has moved much closer to mounting a rival offer to trump the $45bn (£23bn) takeover of TXU, the Texas-based energy group, by Kohlberg Kravis Roberts and Texas Pacific Group.
If this consortium tables a formal offer for TXU, it could create a bidding war for the largest private equity deal on record.
It would also mark a milestone for competition among the world’s largest buy-out firms, which have so far rarely sought to break up each other’s deals.
According to people familiar with the matter, Blackstone, Carlyle and Hellman & Friedman may approach the TXU board with a proposal in coming weeks.

There’s a lot of skepticism about whether or not the Blackstone consortium would seriously challenge the bid from KKR and TPG. The size of the deal could make raising funds for the bid difficult—although the willingness of several large banks to go so far as to extend equity bridges to the buyer indicates that banks are hungry to get a piece of the TXU deal.
What really gives some observers pause is whether or not the Blackstone consortium would decide that it has a better plan than KKR-TPG for uncovering value in the company. One of the reasons private equity groups give for the lack of competition in buyout bids is that they seldom believe they can run the company better than their rivals.
But what makes this buyout different than many others is that it is essentially a non-financial, non-operational opportunity for private equity. Many of the problems of TXU are political–problems between the current management and environmentalists and lawmakers have hurt the performance of TXU’s stock and its ability to expand in Texas. The feeling is that the current management and ownership cannot possibly realize the full value of the company, and that there is some value to just being someone else. The throws an “x” factor into the mix by opening the possibility that the Blackstone consortium may believe it has even better relations with Texas environmentalists and lawmakers than KKR-TPG.
Rival looms in $45bn TXU bid{$$} [Financial Times]
Buyout firms mull rival TXU bid [Reuters]