The Leveraged Buyout of TXU: (B) Energy Future Holdings

This case is designed to support a lively discussion about the relative merits of shareholder vs. stakeholder perspectives in the context of a company that provides a vital public service that has important environmental implications. The 2007 purchase of TXU, the largest utility in Texas, was the largest leveraged buyout in history. Yet, within seven years TXU was bankrupt. TXU (A) examines the spectacular turnaround of TXU from 2004 through 2007, in which shareholders received a tenfold increase in the share price and the CEO was rewarded with nearly $280 million in compensation in four years. But other stakeholders objected to the company’s strategy of aggressive price increases and building new coal-fired power plants. Amidst growing pressure from regulators, elected officials, and consumer groups the board decided to sell the company to the private equity firms KKR and TPG. TXU (B) covers the period after the transaction and the reasons for the buy out’s failure, including its enormous financial leverage and a “one-way bet” on natural gas prices that exceeded the exposure of any of the world’s largest integrated energy companies.