A $32 billion buyout of Texas power company TXU faces one of its last hurdles Friday when shareholders vote on the proposed deal by two private equity firms in a special meeting.
TXU , based in Dallas, agreed earlier this year to be bought by Kohlberg Kravis Roberts and TPG Capital for $69.25 a share in the second-largest leveraged buyout ever.
Two-thirds of TXU's shareholders need to vote in favor of the deal for it to go forward. The deal received approval from the Federal Energy Regulatory Commission Thursday but still needs clearance from the Nuclear Regulatory Commission.
The meeting is scheduled to begin at 10:30 a.m. EDT.
Beyond that, the company will need to navigate the sale of the deal's debt. Such sales have become increasingly complicated in the past month as the backlog of lightly restricted debt has ballooned to $330 billion due to weak investor demand, leading banks to push private equity firms to renegotiate deals.
One investor, who is opposed to the buyout, said the transaction likely will be approved after gaining support from influential proxy advisory firm Institutional Shareholder Services.
"We do not believe the price is an extremely high one; it's a little bit undervalued," said Bruce Allen, president of Bruce G. Allen Investments, a Denver-based investment adviser.
"KKR would not be purchasing TXU if that were overvalued or fully valued. We think they are getting a very good deal," Allen said.
The road to approval for the massive buyout has been bumpy. Before the deal was announced, KKR and TPG took the unusual step of seeking the blessing of national environmental groups who had opposed TXU's plans to double its coal-fired generation.
In addition to canceling TXU's coal strategy, the buyout group also persuaded TXU to trim its retail power rates across Texas to appease angry state legislators and to back out of an outsourcing agreement opposed by its unions.
Franklin Resources, a major shareholder in TXU with a 5 percent stake, originally opposed the deal. But citing "changing market conditions in the intervening time," Franklin said last week it would back the buyout.
The "changing market" is likely a reference to the deteriorating credit markets, which have all but put a stop to big leveraged buyouts.
At the beginning of the year, when the private equity firms and TXU were crafting the deal, KKR and TPG -- formerly called Texas Pacific Group -- were able to negotiate favorable borrowing terms from the banks.
But now Wall Street banks are seeking to renegotiate stricter financial terms and higher interest rates in leveraged buyouts like TXU's in light of the waning appetite among investors for junk bonds.
The sale of TXU's debt, which will take place sometime before the expected closing of the deal at the end of October, is being watched closely, along with a handful of other deals, for any such changes.
A spokesman for KKR would not comment on the debt financing.