A group of four of the largest private-equity funds teamed up to win the hotly-contested auction for Texas Genco Holdings Inc., a merchant generating company spun off from CenterPoint Energy Inc., in a deal valued at $3.65 billion. CenterPoint stands to realize $2.9 billion in cash when the deal is closed, likely in the first quarter of 2005. The deal is subject to regulatory approval.
The buyers include Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. LLC and Texas Pacific Group, which have been separately shopping the depressed energy sector.
Among the losing bidders was a group of hedge funds advised by Lazard Freres & Co., which reflects the growing influence of such funds in captial markets. Hedge funds generally invest in stocks, bonds and other financial assets because it is easier to trade in and out of such investments. However, as hedge funds accumulate big pools of capital, they are starting to lend to companies and make longer-term investments in certain companies.
The CenterPoint auction has been widely watched in the power industry because it includes more than 14,000 megawatts of Texas generating plants, which will likely be the largest sale of power assets by a U.S. company this year. The sale comes amid a debate over whether CenterPoint can charge customers to recover so-called stranded costs in plant investments. Under regulatory rate rules, CenterPoint is currently arguing to state regulators that the generating plants it is selling are actually worth much less than what the winning bidders have agreed to pay. If it succeeds in its argument, then CenterPoint would be able to charge its Houston area utility customers higher rates.