Groups give surprise green thumbs-up to TXU deal

TXU bidders get acquisition buy-in from environmental groups

Houston Business Journal - March 2, 2007

Houston Business Journal

Two of the nation's biggest private equity firms were hammering out a multibillion-dollar deal to buy Dallas-based utility TXU Corp. when they took an unusual step.

They invited a couple of high-profile environmental groups to join them at the negotiating table.

And then they agreed to most of what Environmental Defense and the Natural Resources Defense Council wanted them to do in order for those "green" groups to support the acquisition.

"This is a watershed moment in America's fight against global warming," Fred Krupp, president of Environmental Defense, said of the terms of the $45 billion buyout of TXU by New York-based Kohlberg Kravis Roberts & Co. and Fort Worth-based Texas Pacific Group, announced Feb. 25.

And in a media conference call this week, David Hawkins, director of the Natural Resources Defense Council's Climate Change Center, said: "The decision by the buyers to reach out to our organization reflects a conclusion by the business community that they simply cannot ignore global warming and come up with sound business strategies."

He termed the buyout deal and the "turnaround" in TXU's position "an earthquake in Texas with shockwaves that will be felt from Wall Street to Washington, D.C."

"This company was opposing global warming controls and is now supporting them," Hawkins said. "It was proposing to build thousands of megawatts of coal plants and has now cut 75 percent of them. It's a company that was lukewarm about energy efficiency and renewable energy and is now embracing those resources as a core strategy."

The buyers first called the two environmental groups on Feb. 19.

Jim Marston, the Texas-based regional director of Environmental Defense, was the sole environmental player present in California on Feb. 21 when the first meeting between the buyers and environmentalists took place. The other environmentalists participated by phone.

"They (the buyers) had reached a point where they were going to make the deal public and they wanted to be a 'green' company and they didn't want to be dealing with a bunch of lawsuits. So they brought us in at that point," says Jennifer Dickson, an Environmental Defense staffer in Austin. "We had launched a big advertising campaign against (TXU) and this was becoming very visible. It was definitely damaging the brand of TXU. They were spending millions on lawyers and advertising."

But in the end it wasn't TXU's current management -- which the environmental groups had previously tried unsuccessfully to engage -- that called them in. It was the new owners, who turned out to have some solid "green" credentials in their backgrounds.

David Bonderman, a founding partner of Texas Pacific Group, is a longtime board member of the World Wildlife Federation, while William Reilly, former Environmental Protection Agency administrator and chief negotiator for the buyers, is the federation's chairman emeritus.

Reilly, says Dickson, has had a long relationship with Marston and Hawkins. Under the agreement, Reilly will join TXU's board of directors and will lead the company's efforts toward making climate stewardship a central issue.

"We were surprised" when the buyers called, Dickson says, although the organization's leaders fully expected TXU eventually would have to deal with the growing opposition to its proposed coal plants.