TXU Leveraged Buyout

1
TXU Leveraged Buyout

• Challenges and Opportunities for EDF

Texas, February 2007
2
Key messages

• EDF has a unique opportunity to help shape the
  future of the energy industry
• EDF adds significant value and therefore has
  leverage in the negotiation
• Given the buyers investment strategy, a
  meaningful negotiated agreement can be reached

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Motivations and concerns

• Has a pragmatic approach to getting results
• Risks being criticized for selling out green
  ideals
• Can achieve mission by endorsing TXU deal

• Will reject concessions with significant impact
  on returns
• Seek environmental and regulatory credentials for
  buyout, operations and exit

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Investment Strategy Of The Buyers
PE buyers likely to terminate planned coal plants
not under construction
Significance
Value Creation
Risks

• Value of coal plants is small relative to
  transaction size 580m vs. 45b

Value creation opportunities are in financial
engineering and operating improvements
Exit strategy (IPO) is vulnerable to regulatory
and legal issues
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Strategic Interaction

• EDF is better off if the transaction happens,
  whether or not they endorse it
• EDF endorsement increases the probability of the
  transaction happening
• Concessions increase EDFs willingness to
  endorse, but decrease buyer interest
• The buyers want to get the deal for solid
  economic reasons, but not at any price

Deal
No Deal
E
NE
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Economic Value Of EDF Endorsement
2.000
Concerns of buyers
Economic Value Added
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Analysis Of Possible Concessions
Feasibility
Preferred Concessions
Coal Plants
Renew

• Scale Back Coal Plants
• Demand Side Management
• Renewables
• Lobbying (join USCAP)
• Environmental Audit Committee

Demand Side
Carbon Offsets
Discarded Concessions
Retrofit

• Carbon Offsets
• Carbon Sequestration
• Retrofit old coal plants
• Time-of-use metering

Seques tration
Cost of impact /tonCO2
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Proposed Strategy For Negotiation
Stopping the coal plants is a MUST for EDF
Lobbying US Climate Action Partnership

• Economic Value of endorsement can be traded for
  additional concessions

Demand side management
2 GW renewable energy generation capacity
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Next to knowing when to seize an opportunity,
the most important thing in life is to know when
to forego an advantage
2.000
Disraeli
10
Back Up
2.000
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Strategic interaction matrix
2.000
Deal
No Deal
EDF
EDF

Influence, credibility

None
Endorsement
-
-
Reputation risk
Reputation risk
The Buyers
The Buyers
Economics of deal, EV of endorsement, preemption


Good PR
Loss of investment opportunity, mngmt. time
-
-
Monitoring by EDF
EDF
EDF
No risk, maybe buyers will stop coal plants


None
No Endorsement
Loss of influence opportunity
-
-
TXU as is 58.9 tons CO2
The Buyers
The Buyers


No concessions
None
Longer deal, less certainty, riskier IPO
Loss of investment opportunity, mngmt time
-
-
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PetroChina IPO

• Problems
• Human rights concerns over Darfur
• Environmental concerns
• Offer Size
• Down from 5bn to 2.7bn
• Valuation
• Decrease by 27 (FT)
• Warren Buffet
• "It was a very easy decision to buy PetroChina.
  It was one-third of what it was worth, maybe a
  quarter"

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Value of concessions
2.000
Preferred Concessions
Comments and assumptions

• Scaling back Coal Plants
• Demand Side Management
• Renewables
• Lobbying (join USCAP)
• Environmental Audit Committee

• 12 per ton CO2
• 27.5 per ton CO2
• 15-50 per ton CO2
• Long term impact
• Low cost, could be perceived as green washing

Discarded Concessions
Comments and assumptions

• Carbon Offsets
• Carbon Sequestration
• Retrofit old coal plants
• Time-of-use metering

• Currently 2 per ton CO2 but limited efficacy
• 50-150 per ton CO2
• 150 per ton CO2
• Impact on peak load but low impact on demand and
  emissions