Our move to private ownership is the planned next step in TXU’s ongoing transformation into a top industrial energy company.
Kohlberg Kravis Roberts & Co. and Texas Pacific Group are truly world-class investors appropriate for a company focused on building the industry leadership to tackle the substantial opportunities and challenges in our industry.
The challenges the energy sector faces today are vastly different from just a few years ago. The industry has transformed very quickly from a regional business into a national and even global one. Until recently, for instance, TXU mined all its coal here in Texas. We are now shipping coal 1,500 miles from the Powder River Basin in Wyoming and have evaluated importing coal from South America and China. We are now competing against a world market for key materials and equipment for our new plants. This new world includes competition for scarce materials not just with other companies but with other countries like India and China. Natural gas prices, which set the price of power in Texas and other markets around the U.S., are linked not only to local production but production in countries as far away as Russia and Qatar. Ships carrying natural gas (in liquefied form) will actually make decisions on where to deliver the gas based on real-time price signals across the U.S., European, and Asian markets. Finally, the emissions discussion has moved from a local discussion of sulfur dioxide, nitrogen oxides, and mercury to a global discussion of greenhouse gases. While the U.S. produces about 25 percent of the world’s man-made carbon dioxide emissions, countries like China may surpass this nation within a few years. Meeting energy challenges in this new environment will require a spirit of innovation, expertise across the national and global markets, and transactional excellence. Frankly, these are critical capabilities that TXU just doesn’t have today. Our proposed new owners are expected to add them to our company.
Meeting customers’ demand for economical, reliable, and environmentally efficient power requires innovation akin to electricity’s initial commercialization back at the turn of the 20th century. The right energy answer will take years to unfold and require access to a source of capital willing to invest in new forms of sustainable energy and products to help customers use electricity more efficiently. TXU’s proposed new owners have a proven record of innovation and long-term capital deployment across many industries.
The answer is going to require knowledge and credibility on the national and global stage. From forming international sourcing partnerships to worldwide R&D networks, the investor group brings a global network of partners and relationships that will help TXU create a true competitive advantage in the sector. The addition of board members like William Reilly, former EPA head and chairman emeritus of the World Wildlife Fund, and an advisory chairman to the investor group like James A. Baker III, former U.S. secretary of state, brings increased credibility in national and international discussions surrounding energy security and the environment and will help us constructively shape national energy policy. Donald L. Evans, former U.S. secretary of commerce; James R. Huffines, chairman of the University of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas state representative and former U.S. ambassador to Sweden, will also bring unique and powerful insights to help push the company forward as members of our board of directors following the merger.
Finally, the long-term energy answer will likely require restructuring the entire fragmented power sector to create stronger, more efficient, and financially sound companies. This restructuring will be led by companies with a track record of transactional excellence. From maximizing liquidity to streamlining organizations to aligning incentives, our proposed new owners have demonstrated the ability to efficiently execute large and complex transactions across multiple industries and countries. This skill could prove to be invaluable as the industry likely reshapes itself over the next decade.
The investor group also has a history of working with management teams to build great businesses. Their patience, risk tolerance, and sophistication will enable TXU, as a private company, to create a superior business model and a refocused, environmentally sensitive strategy to respond to the uncertain industry environment. With their capital, expertise, and resources, we can increase our focus on reliability, lower prices, outstanding customer service, innovative products, and investments in long-term, environmentally sound technology.
TXU is a proud company with a strong heritage that has served Texas for more than 120 years. As shareholders, you have played a critical role in TXU’s development and success. I give you my sincerest thank you for your support. I am honored to serve you. I hope you share in our excitement about this new direction in our company’s history. I think the view will be bright from TXU’s next horizon.
