Viridian Note 00491: Massive Green Buyout
- Key concepts:
- Texas utilities, coal orgies, political pressure, leveraged buyouts, backroom Corporate Green maneuvers, TXU, Green Group
- Attention Conservation Notice:
- Stuff like this is gonna start happening all the time. Might as well learn how it works and get used to it.
Links:
A cleaned-up waterway in New York City has wild beavers in it. It's been two hundred
years.
http://www.planetark.com/dailynewsstory.cfm/newsid/40503/story.htm
Capturing carbon dioxide with bio-engineered microbes. http://tyler.blogware.com/blog/_archives/2007/2/22/2756644.html
Here's a spacey European scheme to run an entire life-support system out of geo-engineered microbes, which ought to prove handy when all higher organisms are killed off by climate crisis. http://ecls.esa.int/ecls/?p=melissa
Wow, Joseph Romm has a climate-politics blog. He's not kidding around with it, either. http://climateprogress.org/
Science fiction writer Gregory Benford thinks halting the carbon economy is way too little, too late, so he's come up with his own version of the stratospheric Sulfur Cure. Anti-Kyoto wingnuts at the insidious Heartland Institute think Benford's idea is cheap, dirty and great, so we'll probably be hearing a lot more of it. It's actually one of the better thought-through geo-engineering notions, because Dr. Greg Benford really understands physics, God bless him. http://www.heartland.org/Article.cfm?artId=19484
War on Terror! No, Climate Crisis! Wait, Climate Crisis Terrorism, worst o' both worlds! "Conference Focuses On Terror Potential Of Abrupt Climate Change. Much of the attention devoted recently to global climate change has focused, understandably, on its causes and possible prevention. But a group of international experts gathered on January 24 for a conference, organized by a think tank focused on security issues, on the potential for extremists to use the effects of climate change to their own advantage." http://www.rferl.org/featuresarticle/2007/01/1cb42934-d759-46b3-a2e0-724b633e1804.html
Arab oil sheiks going solar: Abu Dhabi to build giant 500-megawatt solar-power plant. No, they're not kidding. They got nothing but sun and money, so they'll probably be oil-free before anybody else. Â http://www.arabianbusiness.com/index.php?option=com_content&view=article&id=8167:abu-dhabi-to-build-350m-solar-power-plant&Itemid=1
Al Gore wins the Oscar, plans gigantic planetary rock and roll concert. Can you imagine George W. Bush doing stuff like this? Some day Bush won't be president – can you imagine anybody trusting Bush plan, promote, explain, or organize anything? Ever? http://www.algore.org
(((Now for the day's news, which is really kind of awe-inspiring in its suddenness and grandiosity. First, enviro activists crow in victory, a sound one hasn't heard from their camp in some years:)))
**Breaking News**
Victory in Texas ... Environmental Agreement Tied to Sale of Electricity Giant Will Block
Construction of Eight Dirty Coal-Fired Power Plants
Dear Bruce,
Thanks to the generous support of our online activists and donors, today is a truly historic day in the fight against global warming.
News just broke that Texas Pacific Group and Kohlberg Kravis Roberts & Co. are seeking to acquire Texas-based energy giant TXU Corp.
As part of the sale agreement, Environmental Defense helped negotiate an aggressive environmental platform that will, among other things:
Terminate plans for the construction of 8 of 11 coal-fired power plants TXU had hoped to build; (((They were planning to nail these coal-plants up in a panic rush and grandfather 'em in before Bush leaves power.)))
Stop TXU's plans to expand coal operations in other states;
Endorse the U.S. Climate Action Partnership (USCAP) platform, including the call for a mandatory federal cap on carbon emissions; and
Reduce the company's carbon dioxide emissions to 1990 levels by 2020.
Here's a story in The New York Times describing how Environmental Defense helped negotiate this deal: http://action.environmentaldefense.org/ct/Vp16sGE1JX7B/
This is a huge victory for the environmental community. It sends a clear message about the undeniable momentum in our campaign calling for federal global warming legislation. (((I'm unclear on why these guys still want to waste time in federal legislation when they got their "historic victory" by hanging out with Corporate Green merger and acquisition financiers. You'd think they'd blow off the Bush government and spend all their time with bankers, but, I dunno, old habits die hard.)))
The story behind today's announcement began last April when TXU announced alarming plans to build 11 dirty coal-fired power plants in Texas. (((Where else? The whole state stinks!)))
(((Except for the much-beleaguered CAPITAL of Texas, Austin, "the leading city in the nation in the fight against global warming"!))) http://austin.bizjournals.com/austin/stories/2007/02/05/daily26.html?surround=lfn
From the start, most business and political experts considered it a done deal. Texas Governor Rick Perry got personally involved, fast-tracking the permits and declaring "we're not going to let these bureaucrats jerk us around." (((Like most Governors of Texas including the current President, this guy is a consummate ignoramus. Let's hope and pray he never does anything requiring any more effort and skill than being Governor of Texas.)))
Even our own experts in our Texas office considered the odds of stopping the plants as remote, at best.
But the size of the proposal left us no choice but to aggressively oppose the plants. The 11 coal-fired plants would spew 78 million tons of global warming pollution per year, more than twice the expected carbon reductions from the historic California Clean Cars legislation.
So, Environmental Defense mobilized an all-out grassroots campaign targeting TXU and Texas Governor Rick Perry. Nearly 50,000 Environmental Defense members and activists took action, sending emails, attending public hearings across Texas and submitting public comments against the plants. More than 50 community and environmental groups signed on to our letter urging TXU to change its course.
We took out television, billboard and online ads. We reached out to allies in the Texas state legislature and we worked the legal and financial angles to keep the pressure on TXU.
Our efforts were designed to achieve three goals:
- Stop as many of the plants as possible;
- Prevent TXU from exporting its coal plant build-out to other states; and
- Send a national message to other utility companies that the TXU plan is one they should reject. (((Those companies are listening -- not to the activists, of course, but to guys with enough muscle to buy fossil-fuel companies after the activists wear down the stock price a little.)))
It may have been a long shot when we started this campaign, but this weekend's news meets each of these goals. (((I like it when a guy is smart enough to declare victory and actually stop the war.)))
I want to thank everyone who took action on this campaign and supported our work with generous donations or other actions. We couldn't have claimed this seemingly unattainable victory without your support.
Thanks for everything you help make possible,
Fred Krupp
President
(((Now the New York Times weighs in. Note that Krupp cites their article, so he must more or less agree with their assessment. At least, Krupp was clearly a source.)))
A Buyout Deal That Has Many Shades of Green
By ANDREW ROSS SORKIN
Published: February 26, 2007
About two weeks ago, Fred Krupp, the president of a nonprofit advocacy group called Environmental Defense, received an unusual phone call.
William K. Reilly, the former administrator for the Environmental Protection Agency under President George H. W. Bush, was on the other end. But before Mr. Reilly would explain the reason for his call, he said he needed an assurance from Mr. Krupp that he would keep the conversation confidential.
After receiving such a pledge, Mr. Reilly dropped a bombshell: the TXU Corporation, the Texas energy giant that had become the whipping boy of the nation's largest environmental groups, was in talks to be sold to a group led by Kohlberg Kravis Roberts & Company a nd Texas Pacific Group, two large private equity firms.
Mr. Reilly, who works for Texas Pacific, said he wanted to negotiate a cease-fire. If the investors succeeded in taking over TXU, Mr. Reilly said, they would commit themselves to scale back significantly on TXU's plan to build 11 new coal plants and adhere to a strict set of environmental rules. (((The guy is, after all, the former head of the EPA.)))
In return, he wanted the support of Mr. Krupp and his peers, who had spent the past several months waging a bitter and public war against TXU.
Early Monday, after several weeks of marathon negotiations that brought together both environmentalists and Wall Street bankers, TXU announced that its board of directors had approved the bid from Kohlberg Kravis and Texas Pacific for about $45 billion, which would be the largest buyout in history.
(((And the evil genius who proposed building all the coal plants REMAINS IN POWER. That's the genius of it. In fact, since TXU capo C. John Wilder owns a ton of TXU stock, he's gonna clear millions of dollars. The brilliance of this scheme? You don't actually have to buy companies. You just have to bribe the CEO elite and they'll sell out the enterprise, hook, line and sinker!)))
The deal was noteworthy not just for its size, but for the confluence of business decisions and environmental concerns that drove the ultimate transaction. (((Call it "Corporate Green.")))
Because private equity firms are unregulated and historically have valued their privacy, neither Kohlberg Kravis nor Texas Pacific were eager to become an "enemy combatant" of the environmental groups, people involved in the talks said. Reducing the coal plant initiative will also free up billions of dollars in planned spending that the firms will be able to use for other projects or to help finance the transaction. (((Corporate Green "values its privacy" because it is basically covertly doing what governments used to do back when governments actually governed. Why run the EPA when you can just buy coal plants?)))
Within TXU, the controversial plan to build a raft of coal plants had become so damaging to its stock price that its board had been privately weighing a plan to scrap part of the project, said people involved in the talks, (((note that Krupp is willing to talk publicly to the NY Times, while Corporate Green raiders stay off the record))) bringing the number of new plants to 5 or 6 from 11. Shareholders had sent the stock on a roller coaster ride from more than $67 a share to as low as about $53 (((that's not much of a roller-coaster; consider Enron))) over concerns about the risk and vast expenditure; the stock closed at $60.02 on Friday.
Indeed, it was the quick drop in TXU's stock price that got the attention of Kohlberg Kravis and Texas Pacific, which look for undervalued companies and try to turn them around.
(((Carbon companies will be henceforth subjected to organized under-valuement. Their captains of industry will be bought off and then they'll be annihilated. Watch it happen.)))
Together, both firms approached C. John Wilder, TXU's chief executive, in January with an offer for the company, these people said.
At the time, neither Kohlberg Kravis nor Texas Pacific told TXU about their ambition to scale back its controversial coal plants. But behind the scenes, both firms had been developing a new strategy for the company with the help of Goldman Sachs, their lead adviser.
Goldman Sachs has been a longtime proponent of reducing carbon emissions. Its former chief executive, Henry M. Paulson, now the secretary of the treasury, was also the chairman of the Nature Conservancy, an environmental activist group.
Texas Pacific's co-founder, David Bonderman, is member of the board of the World Wildlife Fund, and Mr. Reilly is chairman emeritus. Mr. Bonderman called Mr. Reilly to help work on the deal and create what they ultimately called The Green Group, a committee of advisers that included Mr. Reilly, Roger Ballentine of Green Strategies and Stuart E. Eizenstat, the former chief domestic policy adviser for President Jimmy Carter. ((("The Green Group." Yikes.)))
"We didn't want to be on the wrong side of history," said a person involved in the bidding group who was not authorized to talk about the transaction before its formal announcement. ((("We also didn't want to be quoted in public.")))
(((Fascinated by weird Texas energy politics? Read your fill!))) http://www.texasobserver.org/blog/?cat=7
Under the terms of the deal, TXU shareholders will receive $69.25 in cash for each TXU share. Goldman Sachs, Morgan Stanley, Lehman Brothers and Citigroup will take small stakes in TXU as well as help finance the debt with J.P. Morgan Chase. In addition, the investor group will assume more than $12 billion of TXU's debt.
The deal represents a 20 percent premium over TXU's closing price on Thursday before word of the deal began to leak and was reported Friday on CNBC after the market closed, TXU said.
It is unclear whether shareholders will agitate for a higher price from the investor group or push for other suitors to emerge. Several recent "go private" deals have drawn opposition from shareholders who expressed concern that they were being shortchanged. (((Yeah? Then how come they pay CEOs so much? The shareholders are gluttons for punishment.)))
Monday's merger agreement allows TXU's board to solicit bids from other potential buyers through April 16, and TXU said it intends to do so. (((It'll be interesting to see if any black angel investors show up and INSIST on building coal plants.)))
The investor group has not laid out any specific plans to grow revenues through alternatives to the coal plants, but TXU is not likely to lose money, at least initially, as a result of scaling back. Three of the plants are already in the works and other eight that will be canceled would not have been built for years.
And the group will be getting more than just a utility. TXU is in the midst of an experiment to run broadband Internet over its power lines as part of a venture with Current Communications. (((Very Enron. They loved Internet pipes.)))
Both TXU, which was advised by Credit Suisse and Lazard, and the investor group spent weeks holed up in three conference rooms at the Gaylord Texan, a hotel just outside of Dallas. With armies of bankers and lawyers that frequently numbered more than 40, the group negotiated the buyout deal, including an unusual provision that will allow TXU to seek higher rival bids over the next 50 days. This clause could potentially create a bidding war, perhaps bringing other private equity firms and utilities into an auction.
Related
Deal's Broader Effect on Coal Plants Is Uncertain (February 26, 2007) (((uncertain, but
they've gotta be wondering today)))
Mr. Bonderman and Henry R. Kravis, the founder of Kohlberg Kravis, pleaded their case to the Texas governor, Rick Perry, on Thursday in person at his mansion, mindful that Oregon had rejected Texas Pacific’s deal to buy Portland General and that Arizona had rejected Kohlberg Kravis' deal to buy UniSource Energy. The pair has also reached out to James A. Baker, a Texan and former Reagan cabinet member. (((James A. Baker, "the Bush Consigliere.")))
But perhaps the most difficult talks were with the environmentalists, who often seemed more like Wall Street negotiators than green activists. (((Given that government is a non-player, these self-appointed activists barging into the boardroom are the only thing standing between the citizenry and outright corporate-green feudalism. It's no wonder they've finally learned to act like businessmen when business is the only game in town.)))
Mr. Krupp of Environmental Defense used his conversation with Mr. Reilly as an opportunity to negotiate even harder for further concessions. The men agreed that Mr. Krupp's lieutenant, James D. Marston, who was leading the charge against TXU in Texas, would meet with Mr. Reilly and other representatives of the buying group. And representatives from Natural Resource Defense Council, another climate-control advocacy group, was brought into the discussion to help formulate a plan that all sides could agree on.
So last Wednesday, Mr. Marston flew to San Francisco, (((obligatory "oh look, the enviros are flying in airplanes and spewing carbon" riff inserted here))) where he found himself face to face with Mr. Reilly over breakfast at the Mandarin Oriental hotel. There, over scrambled eggs and croissants, Mr. Reilly laid out a plan that included reducing the coal plants from 11 to 3.
Then the men went to Texas Pacific's conference room overlooking Alcatraz and the San Francisco Bay for a day-long negotiation that stretched until early the next morning. The group, which included Mr. Reilly, Mr. Bonderman and Frederick Goltz of Kohlberg Kravis, worked out a "10-point plan" that included a commitment by the investors to return the carbon- dioxide emissions by TXU to 1990 levels by 2020 and support a $400 million energy efficiency program. (((Okay, this is the actual work of the world being performed here. This is the sound of icebergs not melting, seas not rising, etc. Let 'em get after it, don't get in the way.)))
When an agreement was finally struck, at 1 a.m. the next morning, Mr. Reilly grabbed a bottle of pinot noir from his colleague's office to toast the group. But he couldn't find a corkscrew. (((Need more tech geeks in the boardroom. I'm only a damn author and I've got a Swiss Army corkscrew right here.))) So he ran back to the Mandarin Oriental to borrow one. (((Let's be charitable, maybe their corkscrews were confiscated by airline security.)))
Not all of TXU's historical opponents are popping corks. Some noted that a decision by one company did not sway the others that are building plants. In Dallas, Laura Miller, the mayor and leader of a coalition of municipal officials that has spent $600,000 fighting the TXU plants, said the agreement with the environmental groups might not get TXU as much help as it wanted.
Ms. Miller pointed out that one of the three surviving projects, a plant near Waco, is still opposed by local officials and had drawn a negative recommendation from a panel of Texas judges. She said she hoped that TXU's plans would leave an opening for cleaner projects, like a proposal to build a power line to West Texas, where power producers propose to build large wind farms.
Matthew L. Wald contributed reporting.
