March 2007 Archives

TXU - Greenmail?

Masters of the Universe

The Environmental Defense Fund announced a "Global Warming Victory" last week, referring to its participation in the record breaking $44 billion dollar buyout proposal by Kohlberg Kravis Roberts & Co.(KKR) and Texas Pacific Group (TPG) for TXU Corp. (TXU). Said EDF, "Our staff brokered a deal that marks a turning point in the global warming fight."

However the Wall Street Journal called the deal "The New Greenmail" (February 27, 2007). Recounting the reactions to TXU's announcement last year that they would build 11 new coal burning plants, the WSJ noted:

"TXU had painted a green bull's-eye on itself when it announced plans last year to build the 11 new plants....The announcement sent the environmental movement to the barricades against TXU, and may be one reason that the company's stock, after going up regularly for several years, sputtered and stalled in 2006".

The article suggested that the environmental groups actually aided the equity firms by bringing down the value of the company, therefore making it an attractive takeover target. Greenmail, from blackmail, typically refers to "the practice of buying enough of a company's stock to threaten a hostile takeover and reselling it to the company at a price above market value". The term comes from the strategy was popularized by corporate raiders like T. Boone Pickens, Sir James Goldsmith and Carl Icahn, as well as KKR, all notorious for their lucrative greenmail schemes. Hoovers describes the KKR greenmail strategy like this:

"The barbarians at the gate are now knocking politely. The master of the 1980s buyout universe, Kohlberg Kravis Roberts (KKR) has shed its hostile takeover image for a kinder, gentler, buy-and-build strategy..."

The Wall Street Journal's view of the TXU deal as the "new greenmail" is interesting, as are the hopeful claims by the the national environmental groups. According to optimistic environmentalists, EDF's tactics "set a new benchmark in energy business strategy that will reverberate across the industry and throughout the corridors of Washington", as the Natural Resource Defense Council (NRDC) put it. However it's unlikely that either of these views are entirely correct.

The stock price didn't quite "sputter" on the company's April 21, 2006 announcement for the coal plants. The price was about $45.00 per share at the beginning of April, rose though $50.00 on the announcement April 21st, and continued rising through September and October, when it peaked at $67.00 per share. TXU stock was $64.00 per share in the beginning of November. It slid after TXU lowered its profit projection for 2007 on November 7th based on projected costs to build the new plants, but rebounded to the mid-60's after the buyout offer. It is even more difficult to argue for a decline taking a longer historical view -- 5 (152% gain) or 10 (223% gain) years. You could argue otherwise, but the leveraged buyout is hardly looks like any flavor of greenmail.

Texas: Acting Locally

Despite positive press coverage about the new environmentalism in place like the New York Times and NPR, the deal did not have universal appeal. What's as interesting, if you follow the progress of efforts to persuade businesses to cut back on emissions, is the complicated politics that proceeded the national environmental agency's entrance into the deal.

Although the national environmental groups grabbed the limelight following the announcement of the deal, there was a lot of effort on the local and state level before they arrived. The mounting backlash against TXU and its effect on the stock, if there was any, was most likely due to the efforts millions of stockholders, government, citizens, businesses and state environmental groups .

Four Texas environmental firms challenged Governor Perry's questionable fast-track approval of TXU's coal plant proposals and in response a district judge blocked the governor's 2005 executive order a couple of weeks ago. (Governor Perry is notorious for denying climate change and its scientific evidence, although over the past couple of weeks he might be falteringly changing his tune.)

The mayors of Dallas, Fort Worth, and Houston loudly rejected the proposal, as did 7 million people in 30 municipalities and several regional business associations.

Three shareholder groups also protested the company's decision. The New York City Pension Funds and Connecticut State Treasurer's Office drafted resolutions questioning the company's ability to successfully address probable regulatory measures around C02 emissions. A third shareholder resolution challenged the company's lack of emphasis on energy efficiency.

Regulatory challenges became more likely with the change of government in the November 2006 election and the likelihood of more federal regulatory measures being passed. For example Senate Bill S.280, the Climate Stewardship and Innovation Act, introduced by Sens. John McCain, R-Ariz.; Barack Obama, D-Ill.; and Joe Lieberman, I-Conn, was introduced on January 12, 2007. TXU's canceled plants are considered the "tip of the iceberg", by some industry analysts who predict that further federal regulation is inevitable and will continue to affect utilities expansion decisions.

In fact recent revelations suggest that TXU had already planned to shelve some of the plants ahead of the two national environmental group's participation. According to the WSJ "What the environmentalists didn't learn until later was that TXU's board already was considering killing some of the projects to quiet public outcry and to respond to changing political winds in Washington." (March 3, 2007).


Did the equity firms' decision to invite the national environmental groups (NDF and NRDC) amount to "green-washing", as some claim? We would like to think not. In addition to Texas' own very vocal population, many of the participants in the deal are environmentally astute and realistic, including the principals at the Texas Pacific Group.

But this doesn't mean Texas energy concerns abate. Demand for energy in Texas is expected to increase. Texas will need to pursue multiple energy options. It claims that it already produces more windpower than any other state, and TXU proposed 3 new nuclear power plants last year without a stir.

As far as the three plants that weren't axed in the current 10 point deal, there is strong opposition to their construction. The plants are scheduled to burn lignite, which is a local "dirty coal", high in emissions, mercury containing, and rife with potential pollution and health consequences.

These health and climate realities throw doubt on the suggestion that increasing demand might eventually trump environmental complaints. TXU hasn't helped its public perception by increasing consumer utility prices in deregulated areas by 80--110% since 1999. The company was repeatedly criticized for gouging the customers. TXU now faces public relations problems, emissions concerns, local energy supply concerns and rising demand.

Although, as the WSJ said, "the private-equity crowd didn't get to be billionaires for nothing."(02-27-07) Optimistically the deal will usher in real, incremental solutions, albeit profitable ones.

DNA for the People

Many scientists have an intimate relationship with deoxyribonucleic acid (DNA). They analyze DNA extensively and see meaning in inscrutable patterns of As, Cs, Gs and Ts. They study the nucleic acid structure of gene sequences that code proteins and determine the organism's development. They manipulate code to understand the mechanisms by which DNA replicates, self repairs, and occasionally goes awry. They've cleverly devised DNA computing and nanotechnology and have discovered things like "Zinc-finger protein-targeted gene regulation: Genomewide single-gene specificity". But scientists might still be baffled by this:

    "Remixed here by "cutting edge names" such as Planningtorock and Rex The Dog, the song's DNA is spliced crudely into four mutated clones that warp the spectral waltz of the original into demented disco".¹

That's because while scientists toiled away in their labs, night after day, the rest of the world moved on to synthesize its own DNA. For years, deoxyribonucleic acid was exciting just to scientists, but the rest of the world left deoxyribonucleic acid to labs and lurid murder trials. Scientists used glass plates and tedious protocols to painstakingly sequenced in one organism after another, year after year . Then one day deoxyribonucleic acid became DNA, that sexy, mysterious be-all-end-all, ubiquitous highfalutin cool stuff. Beyond biology, people suddenly began to use the term in ways that had nothing at all to do with deoxyribonucleic acid. DNA became central to everything and now when you see the acronym it may mean anything or nothing.

Reporters revel in the idea that DNA is the central component of life. They even manage to elevate its importance. Here's one reporter's take on deoxyribonucleic acid:

    "Bulbs in spring epitomize the season. They are kernels of DNA-- collective memory -- sprouting into plants we already know but, always slightly different..."2;

As one reporter elevates DNA to a prima donna role in glorious springtime, another cavalierly plunges DNA to impossibly mundane lows:

    "There's a reason no one ever waxes rhapsodic over "that new fridge smell." You open the doors and you're hit square in the nose with a hideous, DNA-perverting carcinogenic stink."3

From those off-hand nature/nurture interpretations of DNA can become much, much more in the hands of an able reporter, author, or marketing guru. Even in national and international politics DNA becomes a sort of anthropological bureaucratic key, a way to understand official decisions:

  • "The attachment to Washington is embedded too deeply in the DNA of Britain's political establishment for a new prime minister to risk an open breach..."4
  • "This wording stemmed from the commission's core DNA, which prompts it to act on behalf of consumers by embracing competition, localism and diversity deemed to be "in the public interest"....Now, after XM and Sirius have fought ferociously for 10 years, they come on bended knee before policymakers..."5

DNA adds panache to corporate name, especially for creative or design companies like PixelDNA or DNA Creative. The latter espouses that "the function of DNA is to define the genetic information that forms your Corporate Identity".

There are probably fewer books about DNA in the "Science" section of Amazon then in "Business and Investing". There are books devoted to every sort of "DNA" imaginable popularized with DNA laden titles: Financial DNA, investing DNA, entrepreneurial DNA, trader DNA, organizational DNA, decision DNA, the DNA Selling Method, the DNA of Leadership,the DNA of Marketing....

Marketing, especially, has discovered this most ubiquitous, malleable acronym. As DNA encodes the genetics of sea urchins but also elephants, so marketing teams press it into diverse roles, from defining multinational banks to health food company philosophy.

  • '"..It was part of our DNA and a great foundation,'' said Catherine P. Bessant, who introduced the ''Higher Standards'' tagline four years ago when she served as Bank of America's chief marketing officer."6
  • "Wild Oats employees are in for an entirely new kind of of Mackey's bio are practically shared DNA in the natural foods industry - a philosophy major who dropped out of college, attire that includes Tevas...."7

You probably thought motor vehicles were all about metal and plastic and oil and new car smell and just in time manufacturing -- how wrong.

  • "With the balance of rear-wheel drive and the availability of V-8 power, the G8 represents another step in Pontiac 's commitment to its performance DNA."8
  • ".."The all-new Lancer GS will crush all the myths about compact sedans with its inherited Evo DNA."9
  • ''Our competitor is really on a strategy of re-branding Daewoo, but we're consistent on the Ford DNA of great driving dynamics.10
  • "...tempt[ing] the buying public by unveiling a prototype street motorcycle inspired by the spirit of Flat Track racing and the XR 750. This XR 1200 prototype, they claim, comes from DNA from the XR line"11

Moving on to the world of entertainment, the acronym's truly twisted meaning becomes even more incongruous. Music, you know, is all about DNA, and in this context it defines a certain je ne sais quois....

  • "The six-track collection of slicker-than-your-average-indie boasts hooks as chiseled as the band's jaw lines. It's glam-infused pop-rock that shares melodic DNA with the likes of Placebo and Bowie."12
  • "But many watching the Chicks fall from country grace were not surprised by the backlash. Country music has conservatism in its DNA, right?"13
  • "The songs contained on (`Meet the Beatles!')," he says, "are part of the collective DNA of the Smithereens."14

Even a diamond isn't what you think it is, a rock chipped out of a cave, without deoxyribonucleic acid: "the Montblanc logo, with a sprinkling of diamonds, takes centre stage in the design DNA... the intricacies..the complexity of the Montblanc Star diamond..."15

Scientists have been through the whole one gene coded one protein thing and and back again, but the media has internalized some central dogma about DNA. As one reporter put it in an article titled, "The Essence of Being16":

"Our tastes, styles, values and choices in careers, relationships, homes, cars, music, books, TV, movies, hobbies, loves, hates and interests all reflect our archetypes. We may have been unconscious of the fact that our archetypal DNA was making these decisions, but they do[sic] influence every moment. Becoming conscious of this information is transformational".

True, other terms attained fame outside the lab. "Symbiosis" and "chimera" and the most annoying "meme", all served multidisciplinary roles and fits of popularity, but the use of "DNA" has spiraled out of control. I confess, though always impressed by the powers of DNA, I underestimated its omnipotence.


1.) "Bad Jamie's rumor mill" The Boston Herald February 23, 2007 2.) "This Week" The San Francisco Chronicle, February 18, 2007 3.) "Modern fridges, explained - somewhat" Minneapolis Star, Tribune MN, February 23, 2007 4.) "The affair is over as history leaves Bush and Blair behind" Financial Times, February 23, 2007 5.) Reject their request, USA Today February 23, 2007 6.) "Bank of America Tagline Has Run Its Course" The New York Times February 20, 2007 7.) "Whole Foods CEO doesn't back down" Rocky Mountain News February 23, 2007 8.) "Pontiac and Saturn will add new models developed overseas" The Oregonian February 17, 2007 9.) "The Evolution of Mitsubishi" The Toronto Sun February 18, 2007, 10.) "Mondeo firms for a return" The Courier Mail, February 17, 2007 11.) "The shape of things to come" The Irish Times January 24, 2007 12.) "The Guide: music" The Guardian (London) February 24, 2007 13.) "When country went right: Country music wasn't always married to conservative politics. It happened in the Nixon era." (American Prospect) in Chicago Sun Times February 23, 2007 Friday 14.) Love them do: Frontman Pat Dinizio is psyched about the smithereens' new beatles project Chicago Sun Times January 7, 2007 15.) Power jewelery; Montblanc and Roberto Coin have launched their jewelery collections in Singapore recently. The Business Times (Singapore) February 24, 2007 16.) Sunday Mail (South Australia) February 18, 2007

follow us on twitter!