WASHINGTON (AFP) — Texas energy group TXU Corp. said Tuesday that US regulators had given final approval to two private equity groups and other investors to proceed with their record 45-billion-dollar buyout.
The Nuclear Regulatory Commission's approval of a TXU buyout marks a triumph for Kohlberg Kravis Roberts and Texas Pacific Group, but the private equity titans may face a tough fight stitching together the deal's hefty financing.
A housing market slump and rising foreclosures have ravaged the US credit markets in recent months forcing banks to tighten their lending standards and the private equity firms plan to use large amounts of debt to finance their buyout.
TXU said in a statement that it aims to close the deal between October and December. The Dallas-based utility's shareholders approved the buyout overwhelmingly on Friday.
The NRC's green light ratchets up pressure on big banks, including Citigroup, Goldman Sachs and Morgan Stanley, that agreed to stump up billions of dollars in financing for the deal.
The credit crunch has already taken a toll on other private equity buyouts.
Home products retailer Home Depot was forced back to the negotiating table with three private equity firms in late August over a deal to sell its wholesale supply division.
Home Depot eventually agreed to sell the supply unit for 1.8 billion dollars less than it had hoped after banks providing credit to support the deal balked at its original 10.3 billion dollar price tag.
Kohlberg Kravis Roberts and Texas Pacific Group publicly launched their buyout bid for TXU in February. The 45-billion-dollar deal, including TXU debt, is the biggest buyout ever attempted.
Few such deals have been inked since early August when credit jitters jolted global financial markets.
Private equity firms usually buyout public firms by taking on hefty amounts of debt financing. They then seek to take a targeted company public again within five years after restructuring its operations, hoping to sell it on for a profit while paying off accrued debt.
The deal entitles TXU shareholders to 69.25 dollars in cash for each share of company stock.
TXU is one of America's largest power firms and Texas' biggest electricity producer.
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