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February 26, 2007 | Andrew Winston | Jump to: Comments (1) | Post A Comment

On the Right Side of History (The Amazing TXU Story)

An incredible story has been unfolding over the last few days. The Texas utility TXU is potentially being bought by private equity firms (including the famed KKR) for $45 billion. The fact that this would be the largest private buyout in history is shockingly not the main story. No, the focus is on how these profit-maximizing buyers are planning to scale back on TXU’s much maligned plan to build 11 new coal plants.

The environmental commitments here are surprising (I won’t belabor the details — see Marc Gunther’s blog , the NY Times article, and the TXU press release). I want to focus instead on what this tells us about the “Green Wave” and stakeholders. As I wrote about a few months ago, CEOs interested in sustainability generally feel that “Wall Street doesn’t get it.” One CEO said that Wall Street, hedge funds, and private equity are so short-term focused, they make long-term sustainability decisions hard to make. Apparently, when it comes to climate issues, that short-termism is now cracking.

What makes this story so compelling — and indicative of a major shift in the business world — is that these private equity firms felt that TXU’s coal dreams were bad for business. As the Times points out, concern over TXU’s plan has depressed the stock (and, not so ironically, it was precisely that lowered stock price that caught KKR’s attention). I’ve been wondering for months why the shareholders weren’t more up-in-arms — after all, their company was planning to sink billions into assets that last for decades in a highly uncertain regulatory environment (to take the extreme possibility, what if coal, as currently burned, is effectively banned? Or, more likely, what are operating costs if an emissions cap puts a high price on carbon?).

As someone close to the bidding on TXU told the Times, “We didn’t want to be on the wrong side of history.” Maybe Wall Street does get it.




On February 27, 2007, Marc Gunther said:

Andrew, I think you’ve pinpointed the real significance of this remarkable story. It’s the first time I’ve seen big money or Wall Street push a company to be more environmentally forward-thinking. So much of “green business” has been held back by the street’s skepticism. We may finally be seeing a shift. There’s was Citigroup’s excellent report on the financial impacts of climate change. Lots of good things happening at Goldman. Venture money flowing to clean tech. And now TXU, the biggest deal of all, in every sense.


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