CNBC's Faber: KKR, Texas Pacific Close to Record Deal for TXU

In what will be the largest leveraged buyout of all time, the private equity firms of KKR and Texas Pacific Group are close to announcing a roughly $45 billion purchase of TXU , the giant Texas utility that is the largest producer of power in that state, CNBC's David Faber reports.

TXU's board was expected to vote on the deal this weekend and an announcement is likely on Monday morning, people familiar with the situation told Faber.

An usual aspect of the deal is the set of environmental commitments the private equity buyers are reportedly making ahead of the transaction. The New York Times reports that TXU, at odds with environmentalists, would abandon eight of 11 proposed coal plants and agree to a list of environmental measures.

The Times, quoting people familiar with the negotations, says the buyers asked two prominent enviromental groups what measures could be taken to gain their support for a deal. One of the measures would be the reversal of TXU's approach to climate change, including the goal to reduce carbon emissions to 1990 levels by 2020.

TXU, KKR and Texas Pacific officials declined comment. The Times says Goldman Sachs brokered the deal with environmental groups, which could help curb years of costly litigation over emissions from the plants.

The exact price KKR will pay is unclear, but could be a premium of about 20% to the Friday's closing price of $60.02, or roughly $70 to $72 a share, Faber reports. In after-market trading Friday, TXU soared to the $70 level.

TXU's current market cap is $27.5 billion. It also has $12.3 billion in debt. Since the consideration will be in cash and given TXU's current enterprise value is roughly $39 billion, the addition of any premium will make it the largest LBO ever, topping Blackstone's recent $39 billion buyout of Equity Office Properties.

The deal itself will require at least $6 billion to $7 billion in equity, with KKR and Texas Pacific equal partners in providing equity, Faber said. And in what is a recent trend, it appears banks will bridge some portion of that commitment until both private equity firms can sell down their overall commitment. That was done in Blackstone's purchase of Equity Office.

KKR had held the title for the largest LBO ever, it's deal to acquire RJR Nabisco back in 1988 for $25 billion. That deal did not generate the kind of returns that had been hoped for at its announcement.

TXU has both regulated and unregulated businesses. Its electric delivery business is regulated but its larger power generation business is not. Any potential deal will require state approval.

TXU has been a stock-market darling for much of the last few years as CEO John Wilder engineered a significant turnaround with several shrewd capital allocation moves.

Wilder took the helm a little more than a year after the stock hit an all-time bottom of $5.44 on Oct. 16, 2002, as the Enron scandal, California's energy crisis and state deregulation took their toll. Shares have moved almost vertically since then with gains of more than 1000%.

The company, which counts Reliant Energy among its rivals in the state's deregulated electric market, has seen an increase in smaller, price-slashing competitors in recent years. Texas deregulated its electricity market in 2002.

TXU has been one of the main beneficiaries of the state's decision to link electricity rates to natural gas prices. The company relies primarily on power plants fueled by coal and nuclear energy, which are much cheaper to operate compared with natural gas or oil.

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