TXU’s shareholders have spoken, and unlike some debt investors, they don’t think a leveraged buyout is such a bad idea.

After winning shareholder approval on Friday for the $32 billion buyout of Texas power company TXU Corp, only the debt markets - and one regulatory approval - stand between Kohlberg Kravis Roberts & Co and TPG Capital finally getting a big power deal to the finish line.

That’s a long way from KKR’s and TPG’s forays into Arizona and Oregon. KKR, shot down nearly three years ago by Arizona regulators when it tried to buy Unisource with a group of investors, and TPG Capital, which fell to the Oregon regulators only a few months later in its attempt to buy Portland General, might actually have learned from their mistakes.

The private equity firms spent the first half of this year maneuvering their way through Texas’ regulators, environmental activists and legislators during the spring. This summer they hit the road to talk to investors as they faced opposition from their largest holder.

For a power deal, it’s all been done unusually fast. For instance, Exelon and Public Service Enterprise Group had been working on their deal for over a year and FPL Group and Constellation on theirs for almost a year when they finally decided to call it quits (again, because of issues with state regulators).

And now, what’s left to navigate is something that KKR and TPG probably had not calculated into their model early this year - the effect of the collapse of the sub-prime mortgage market on the broader markets and demand for their own debt.

First Data Corp is taking the brunt of the market’s worries right now. Depending on how the sale of its debt goes, KKR and TPG could find themselves next up fighting with the banks over the terms of their debt to try to make it more attractive to buyers. The TXU deal is expected to close in October.

That’s one battle they couldn’t really have prepared for last spring.   

No wonder Transocean and GlobalSantaFe insisted on calling their deal a “merger of equals.”

Months before agreeing on the final deal, in which the larger Transocean agreed to pay about $17.3 billion for GlobalSantaFe, GlobalSantaFe had proposed buying Transocean, according to a recent regulatory filing.

On May 7, GlobalSantaFe - with a market capitalization of less than $15 billion - offered to buy Transocean for about $32 billion, or $106 per share. That would have been about a 19 percent premium to where shares were then trading.

A few days later, Transocean said no, but as it had since talks began the previous summer, continued to tell GlobalSantaFe that it thought the companies made sense together.

The offer had come after months of GlobalSantaFe having juggled interest from two other drilling companies and two private equity firms that did not pan out.

By February of 2007, GlobalSantaFe had ruled out one offshore driller as a buyer and Transocean and GlobalSantaFe started working in earnest on their deal.

After Transocean said no, the companies then finally agreed on the unusual merger of equals structure in which they divided up power . 

Transocean walked away with the majority of the new company, the CEO spot, and its name and corporate policies and headquarters intact, but GlobalSantaFe did get a reward for its switch to humble target from buyer. Shareholders in both companies are due to receive $15 billion in a dividend paid out from bank loans, the companies are to evenly split the board members and it holds the chairman and Chief Operating Officer spots.  

It’s been a good week for TXU. The Texas power company was saved from having to jump one hurdle between it and the closing of its $32 billion buyout and easily made it past another.

And the arbitrage spread on the deal - an indication of how likely investors believe a deal is to go through - shows it. It has narrowed to under 3 percent, which is considered within a normal deal range and a far cry from the 9 percent it was hovering at just a few weeks ago when it was seen as one Wall Street’s at-risk LBOs .

Its largest shareholder, Franklin Resources, has decided it will back the $69.25 offer from private equity firms Kolhberg, Kravis Roberts and Co and TPG Capital, reversing its earlier position that the number was too low. The shareholder vote is set for Sept. 7.

The reason points to the deteriorating credit markets, which have all but put a stop to new large-scale buyouts for the rest of the year. In a regulatory filing, Franklin Resources, which owns about 5 percent of the company, attributed the move to “changing market conditions” since its July 24 decision to vote against the deal.

It was never clear that a lot of shareholders shared its position - some told Reuters that they thought the deal would go through. But since TXU needs two-thirds of shareholders to back the deal, it had been an issue.

Also newly in TXU’s favor - all four of the proxy advisory firms, including the most influential one, Institutional Shareholder Services, have backed the deal. The ISS report, which came out earlier this week, pointed again towards the tighter credit markets as one reason to vote yes, saying shareholders would likely lose value if the deal did not go through because KKR and TPG has signed up for such favorable borrowing terms from the banks.

With most regulatory and political battles behind it, that sweetheart financing may prove to be the final hurdle to the deal’s closing, expected in October. Banks have been pushing private equity firms to renegotiate financing agreements with stricter terms in light of the changing appetite among investors for junk bonds, which has created a backlog of $330 billion of global debt.

Rumors last month that the banks - which include Morgan Stanley, Citigroup, Lehman Brothers, JP Morgan and Goldman Sachs - would walk away from the deal have been put to rest. But there are still lingering worries about TXU’s financing, Hilliard Lyons analyst David Burks wrote in an Aug. 30 research note. 

“There have been concerns raised that the financing of the transaction could be at risk due to the banks not wanting to take on additional debt during an onerous period in the credit markets,” he wrote.
       

There may be a lot of hype out there, but overall, venture capital and private equity firms are indeed putting more money into the green energy sector.

And while U.S.-based investment in clean energy, which includes everything from solar technology to wind farms to ethanol, has lagged Europe in the past, it is on track to surpass it in 2007 for the first time.

Venture capital and private equity firms invested $10.6 billion in the first half of 2007 in clean energy and on an annualized basis, the majority of that spending will take place in the United States this year - the inverse of last year.

That overall pace of investment is up from 2006, when about $18.1 billion was invested in the sector, according to a report from New Energy Finance, a London-based research firm for the sector.

The amount that VC and PE firms will invest is expected to grow at a compound annualized rate of about 17 percent through 2013. And during that time, the report says to expect $262 billion worth of VC and PE deals to close, absorbing $146 billion of equity.

There is one caveat of course. The recent tightening in the credit markets has not yet had an effect on clean energy, but could slow growth in some areas, the report said.

The green energy movement is broad-based, with 1,859 venture capital and private equity investors having either made investments or stated their intention to do so and another 193 funds that invest in clean energy, according to the report.

During this year, like last, wind will get most of the annualized investment of $21 billion in the sector, followed by biofuels, biomass and waste; solar; efficiency, carbon and power storage; fuel cells and hydrogen and then geothermal, mini-hydro and marine and carbon markets, the report said. 
   
  

Oil and gas companies still stinging from last year’s deal price inflation - an increase of 55 percent from 2005 - may welcome the M&A slowdown that has come with a tightening of credit markets if it helps lower demand.

Driven by the need to put more reserves on their books, oil and gas companies fought each other and private buyers for assets, spending 80 percent more than a year earlier for just a 15 percent increase in proved reserves.

In all, they spent $91.8 billion on proved reserves, up from $51.5 billion a year earlier, according to a report from John. S Herold, a petroleum research company, and Harrison Lovegrove & Co., an energy corporate advisory firm.

Oil and gas companies also decided it was time to be more risky in what they did buy, nearly doubling their spending on unproved reserves to $47.4 billion from about $24 billion a year earlier.

They also increased the percentage of spending overall to build reserves that came from unproved properties to 12 percent in 2006 compared with 6 percent a year 2002, cutting back on development and exploration spending.

ConocoPhillips was the biggest spender of all, shelling out $42 billion for both acquisitions and development - three-quarters of which was on purchases. Much of that was wrapped up in its $34 billion acquisition of Burlington, the value of which has been questioned by many analysts.

Even after all that spending, oil and gas companies are still facing the same issues of growing reserves that they have always dealt with. Reserves for the 228 companies worldwide the report covered were up only 2 percent in 2006.  
     
     
    

Investors in TXU Corp. - due to vote in just two weeks on whether to sell the company to private equity firms for $32 billion - might want to take notice. The first major power deal in 16 months finally closed on Friday, putting at least a temporary end to a string of failures in the sector.

British power company National Grid, which announced plans in February of 2006 to buy KeySpan Corp. for more than $7 billion, finally made it through its last state regulatory hurdle this week.

The deal was announced amid a flurry of optimism in the sector about consolidation with deals that included Exelon Corp.’s plans to buy Public Service Enterprise Group, Duke Energy’s acquisition of Cinergy Corp., and FPL Group’s proposal to buy Constellation Energy.

Of them, only the Duke-Cinergy deal closed, in April of 2006. The others ended up on the scrap heap late last year as the companies fought with state regulators - newly empowered after a change in federal regulatory oversight seemed to open the door to more scrutiny - and local politicians.

Even small deals have been tough to come by. Just last month, Australia’s Babcock & Brown Infrastructure Ltd walked away from a $2.2 billion deal with NorthWestern Energy Corp. after state regulators had blocked the deal.

The failed deals have cut into M&A in the sector, as corporations look warily at how state regulators - who are tasked with making sure consumers get the best rate possible - will view their combinations.

TXU’s buyers, a group led by private equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co, have already made it past the state legislators and politicians, but they still need all the good karma they can get.

The buyers have to get past their largest shareholder, Franklin Resources, which has said the deal price is too low. And they have to sell all that debt that goes with the deal in markets that don’t seem too open to massive junk bond deals. Globally, some $330 billion of junk bonds from other leveraged buyouts are still waiting to be sold.

If only all companies could be as clear cut as Sigma-Aldrich when it comes to denying market rumors.

When responding to queries about rumors, companies often go with the all too commonplace and not particularly helpful “We don’t comment on market speculation.” Hmmm. Is that a no-comment or a non-denial denial? Or they’ll say something like “We are always considering opportunities and talking to competitors.” Does that mean the rumor is true? To their credit, TD Ameritrade and E*Trade’s PR people, shed a bit more light than normal early on Wednesday regarding their M&A strategies when rumors flew of a potential merger.

Sometimes the company spokesman will go off the record and say something like “There’s nothing here, but you can’t write that.” Helpful, but not so great if the stock is up and the options are moving around like crazy.  

And then there’s Sigma-Aldrich CFO Michael Hogan.

When faced with  market speculation that his chemical company was interested in acquiring German specialty chemicals company Altana - a rumor that sent Altana shares up 6 percent earlier today - he just told it like it is.

“I will tell you there are no discussions taking place with Altana…the rumors are false,” Hogan told Reuters. And he didn’t stop there.  ”We had a call from Altana, because they were as perplexed as we were,” said Hogan.

And then this.  
     
“To give you an idea of how untrue the rumors are, I had to look Altana up to figure out who they are,” Hogan told Reuters.

Aha. That’s definitely a denial. Check that rumor off the list. Altana shares gave up most of their gains, closing up only about 2 percent in Germany. 

   (With reporting by Euan Rocha)
     
    

Steel services company Ryerson Inc. says it really was shopped around.

In the latest step in a proxy fight with hedge fund Harbinger Capital Partners, Ryerson defended its $1.06 billion sale to Platinum Equity, saying it exhausted the list of possible buyers for the company. Platinum Equity’s $34.50 per share offer - which came in almost 50 cents per share below where its stock price was trading - is the best it could do, it said in a proxy filing.

Harbinger, which is disappointed with the price, is pushing forward with a proxy campaign to elect new board members at the company’s Aug. 23 shareholder meeting so that it can reevaluate the Platinum deal. It has not said that it will reject it, but that is one possibility. 

But Ryerson argues that the auction for the company was run the way it should be and that the price was the highest out there. It received 3 bids after contacting 55 parties, the company said. Here are some of Ryerson’s numbers: 
* The Ryerson board met 30 times between January 10 and July 24 
* 55 parties were contacted as part of a broad auction process run by UBS including 23 mills, 6 service centers, and 26 private equity firms 
* 20 possible buyers signed confidentiality agreements 
* 8 put forth indications of interest 
* 3 conditional bids, including Platinum, were made 
* 2 additional parties expressed interest in July 
* Management conducted presentations to six interested parties.

In any case, that $34.50 offer is now higher than Ryerson shares. They have fallen 9 percent since the deal was announced to $31.80 per share on Wednesday afternoon.

Some of Carl Icahn’s picks may be suffering, but his investment in Temple-Inland is going to yield at least one pay-off. 

Icahn, who bought into the forest products company in 2005, was rewarded earlier this year with news that it would finally sell its timberlands - a move that many of its competitors have already made. As a thank-you, he instantly dropped his plans for a proxy battle to replace board members.

Now Temple-Inland has announced that it found a buyer for those assets, and it expects to give shareholders back about $10.25 per share in the form of a special dividend after the sale closes, expected in the fourth quarter.

Icahn, who began buying shares in the company in early 2005, according to regulatory filings, owned as of a July 30 disclosure, 8,733,439 shares, an 8.5 percent stake in the company. Based on that stake size, worth about $481 million at Temple-Inland’s current price, his payoff on the special dividend will be $89.52 million.

How his stock investment is doing is tougher to figure out. Since Temple-Inland announced plans to sell its timberlands and spin off two other businesses on Feb. 26, shares have fallen about 12 percent. Shares are off 17 percent from a year high of $66.28 on July 19, with most of those losses coming during the past two weeks after the company announced earnings. 

Since the beginning of 2005, however, shortly before Icahn disclosed that he was considering buying a large stake, the shares have risen about 66 percent.

The pay-off comes at a time when some of Icahn’s other investments have seemed to take a hit. Efforts to take over WCI Communities and Lear Corp. failed, leaving shares of both companies to sell off. Shares in Motorola, where he has been pushing for change, have fallen about 21 percent this year.

Oil and gas driller Pride International is looking at both small and large deals, company executives said on Thursday when they released quarterly earnings, adding more fuel to the notion that large-scale deals may finally be coming to the drilling sector. 

Consolidation among the drillers has been limited for the past year in part because of sky-high valuations. But a recent $18 billion deal in which Transocean agreed to buy GlobalSantaFe may have changed the landscape enough to force some companies to look more closely.

Pride pointed out that there are significant benefits to being larger, including helping offset labor constraints and improving negotiations with suppliers, according to a research note from Lehman Brothers.

Pride is interested both in small-scale consolidation, such as acquiring speculative newly built assets and also in exploring much larger “corporate-level” deals, Lehman wrote.

On that front, Pride may not stand alone.

“We believe most of the contract drilling companies are reevaluating their current size and strategic positions in the industry and are highly likely to be considering potential suitable merger partners,” Lehman wrote.

Other companies in the sector that analysts have pointed to as potential players are Noble Corp., Diamond Offshore Drilling Inc., Rowan Cos., Hercules Offshore Inc. and Ensco International Inc.