M&A

CFO Returns to TXU Amid Spinoff Talk

The Dallas-based utility may cut the cord to its electric transmission and distribution subsidiary.
Stephen TaubOctober 21, 2005

Officials at utility TXU Corp. announced that former chief financial officer Robert S. Shapard will rejoin the company as a strategic adviser in early November. His assignment? To direct growth strategies focused on the company’s regulated electric transmission and distribution subsidiary, TXU Electric Delivery.

According to Dow Jones, TXU officials confirmed speculation that the Dallas-based company is considering spinning off its power-delivery business or taking other steps to extract more value from those operations.

Shapard, who has spent most of his career in the utility industry, including 20 years at TXU, was named chief financial officer of Tenet Healthcare Corp. in February. After leaving TXU five years ago, he spent time as a finance executive with utility Exelon Corp. and chemical company Ultramar Diamond Shamrock.

According to bond analysts at Gimme Credit Research, there are “big performance differences” between the delivery company and the power generation part of the business, TXU Energy. For example, the report noted, TXU Energy generated free cash flow of $747 million for the 12 months ended June 30; TXU Delivery pumped out only $3 million. Furthermore, TXU Delivery had $722 million in capital expenditures during the most recent quarter, $346 million more than TXU Energy.

Annual-ratio comparisons don’t look much better for TXU Delivery. In the past 12 months, EBIT-to-total assets for the delivery company came in at 6.8 percent, versus 13.4 percent for TXU Energy, reported Gimme Credit. And the delivery company — with a 25 percent ratio of EBITDA-to-total debt — is more highly leveraged than TXU Energy, at 57 percent.

If the spinoff rumors are true, suggests the bond analysis, then TXU Corp.’s motivation is clear: “Take advantage of a steamy market for transmission assets and get out from under a business that is not generating free cash flow.”