This is truly an amazing story. TXU, the Texas energy company that has been battling environmentalists over its plans to build 11 coal-fired power plants, is being acquired by two private equity firms that say they will scale back those plans dramatically, and turn the utility into an environmental leader.
Even before announcing the $45 billion deal–the biggest private buyout ever–Kohlberg Kravis Roberts & Co. and Texas Pacific Group, the private equity firms, consulted with top people from Environmental Defense and the Natural Resources Defense Council to secure their support.
Fred Krupp, the president of Environmental Defense, told me: â€œIâ€™ve been at Environmental Defense for 22 years, and Iâ€™ve never seen environmental issues play such a big role in a major transaction.â€
Hereâ€™s why this is such a big a win for the enviros:
1. TXU will drop plans for eight of the 11 coal plants.
2. TXU will support federal legislation regulating carbon emissions.
3. TXU will form a “sustainable energy advisory board” whose members will include Ralph Cavanaugh of NRDC, who knows more about the utility business than anyone else in the environmental movement, and Jim Marston, head of Environmental Defenseâ€™s Texas office, which had filed a couple of lawsuits against TXU.
4. TXU says it will â€œadopt corporate governance and executive compensation programs that tie the operations and goals of the company to climate stewardship.â€ In other words, executives will be paid more if their operations emit less.
â€œI didnâ€™t want to kiss them on the lips in public,â€ Marston told me, “but this is exactly what weâ€™ve been asking corporate America to do.â€
Remember, Marston was fighting and litigating against TXU until now. I wrote a long feature about the battle in Fortune and a column on CNNMoney.com about how Wall Street investment banks got dragged into the controversy.
It’ll be fascinating to see is whether this deal signals a change on Wall Street. Just last week, the activist group Rainforest Action Network picketed Merrill Lynch because it’s one of TXU’s lead lenders. Merrill’s reputation has taken a hit. By contrast, Goldman Sachs stayed away from the coal financing and instead played an advisory role in the buyout deal and will now take a small stake in TXU.
The deal was not expected to be announced until this (Monday) morning, so the buyers werenâ€™t talking. Itâ€™s evident, though, that two of the key players in the deal were William K. Reilly, the former EPA administrator under Bush I, and David Bonderman, founder of Texas Pacific, who serves on the boards of The Wilderness Society, the Grand Canyon Trust and the World Wildlife Fund. Reilly called Krupp about two weeks ago to begin secret negotiations with the greens.
Marston was dispatched to San Francisco last Wednesday, for a marathon meeting with the buyers the began at 9 a.m. and went until 1 a.m. (â€œIt was during that day that I realized that Iâ€™m not 25 or 35 or 45 anymore,â€ he told me.) Even before he sat down with them, the buyers had committed to dropping plans for eight of the 11 coal plants and supporting federal climate change legislation.
â€œThey view themselves personally as people who care about the environment,â€ Marston said. â€œMore important, I think they believe that the future of the electric power industry depends on being able to thrive in a carbon dioxide constrained world.â€
David Hawkins, who runs the climate change work at NRDC, told Reuters: “What we are witnessing is the beginning of the end of investments in old-fashioned coal plants.”
TXU suffered a significant setback last week when a state judge blocked Texas governer Rick Perryâ€™s efforts to speed up approval of the coal plants. But this deal was already in the works by then,
More significant, maybe, was that Wall Street had doubts about the coal project. TXUâ€™s stock had falled by about 20% in recent months.
Still, no one expected this. When word of the private equity deal first leaked, The New York Times reported:
The amount of private money that is being offered is a huge financial endorsement of the companyâ€™s controversial energy strategy. TXU has riled environmental advocates by proposing to build 11 coal-fired power plants in Texas.
That, of course, was 100% wrong. As I said, this is an amazing story.