After the euphoria, the important question comes up: how the hell KKR manages to convince other people to pay for their fun ride?
At the NYT today:
In an unusual twist that may soon become common, the banks are going one step further than simply providing the debt financing involved in the deal, in this case a daunting $24 billion of debt.
The banks are also lending $1 billion to TXU’s buyers, Kohlberg Kravis Roberts & Company and the Texas Pacific Group — not as secured debt, but in the form of equity using the bank’s own cash.
[…]
The risk to the banks is that the value of TXU could fall sharply below the $69.25 being offered. Yesterday, TXU shareholders welcomed the deal, driving up the shares 13 percent, to $67.93. [Private Equity Buyout of TXU Is Enormous in Size and in Its Complexity, Feb 27 2007]
Also, humor:
The deal still must undergo months of scrutiny from state and federal regulators. And while the deal has won support through pledges to cut electric rates and scale back a plan to build coal-fired power plants, the private equity firms must still overcome a perception that buyout buyers are temporary owners who are not beholden to shareholders or customers.
Talk about building bridges. [Private Equity Buyout of TXU Is Enormous in Size and in Its Complexity, Feb 27 2007]
If KKR sounds familiar to you and you are unfamiliar with modern economics or finance history, you might be thinking of Barbarians At The Gate, based on the book that goes by the same title. Heh. I bet somebody is going to write a book on this, just like what happened the last time KKR had fun at RJR.
