KKR Barbarians Go Green as Buyout Firms Profit Cutting Energy – Bloomberg Markets Magazine

Bloomberg Markets magazine.

For much of 2006 and into 2007, Environmental Defense Fund had been battling to stop TXU Corp., Texas’s largest power producer, from building 11 coal-fired plants. The barrage of lawsuits, town-hall meetings and online community groups was also becoming a major headache for KKR & Co., TPG Capital and Goldman Sachs Group Inc.’s private-equity arm, which were planning the world’s biggest leveraged buyout of the utility company.

“We had to get the environmentalists on board,” recalls William Reilly, senior adviser at Fort Worth, Texas-based TPG, who headed the Environmental Protection Agency under President George H.W. Bush.

Reilly sat down with James Marston, director of EDF’s Texas office, on Feb. 21, 2007, Bloomberg Markets magazine reports in its May issue. Over scrambled eggs and coffee at San Francisco’s Mandarin Oriental hotel, the two agreed that to win environmentalists’ blessing, TXU’s new owners would build just three plants, Marston says.

At TPG’s California Street offices, co-founder David Bonderman and KKR partner Frederick Goltz weighed in. By 1 a.m., the would-be acquirers had agreed to cut TXU’s carbon emissions to 1990 levels by 2020, spend $400 million on energy efficiency and tie executive pay to environmental goals. The $43 billion LBO was announced four days later.

“We did it to be on the right side of history,” Reilly says.

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