Saturday, March 20, 2010

Environmental Defense Fund Strikes Deal with Carlyle Group

Fresh off deals with WalMart and Kohlberg, Kravis, Roberts (KKR), the Environmental Defense Fund partnered with The Carlyle Group on greening their corporate affiliates.

This isn't your father's EDF, the group that took on chemical makers of DDT. It's the PEU version:

PEU = private equity underwriter

Thirteen EDF board members come from the investment class. One is the grandson of WalMart's Sam Walton. Many are PEU's.

Philanthropedia states the following about the EDF:

"They are very political and focused."
"They are very market oriented and politically astute."
"They keep advocacy front and center."

"They have effective activism for the best solutions (sometimes market based, sometimes regulatory)."
"They are clearly linked to the policy process."
"They do smart policy work and lobbying."

Those words could describe any politically-connected private equity firm. Congress frequently grants PEU's huge chunks of government business, special tax breaks, preferential market territory or regulatory free zones.

One Philanthropedia comment described EDF's work on Texas coal fired power plants.

"They influence market players, but are more effective in their energy campaigns on the ground, e.g. Texas coal."
EDF's press release on 2-26-07 stated:

News just broke that Texas Pacific Group and Kohlberg Kravis Roberts & Co. are seeking to acquire Texas-based energy giant TXU Corp.

As part of the sale agreement, Environmental Defense helped negotiate an aggressive environmental platform that will, among other things:

  • Terminate plans for the construction of 8 of 11 coal-fired power plants TXU had hoped to build

TPG and KKR took on huge amounts of debt in the $43.8 billion TXU deal. By eliminating 8 of 11 coal fired plants, the company's capital budget decreased by billions. The original 11 plants were projected to cost $10 billion. The EDF "deal" saved TPG & KKR $7.2 billion.

The company's latest SEC filing shows:

Total debt as of 12-31-09 stands at $43.9 billion, with net debt of $41.1 billion. The company has a leverage ration of 9.40x.

Think how much higher debt would've been without the "EDF deal."

EDF's PEU board members know the importance of paying interest to bondholders while maintaining profit margins. Did they provide their financial expertise to TPG, KKR et al?

It was a "very smart move on their part to have talked in advance with environmental groups," said Barry Abramson, a utility analyst with Gabelli Asset Management Inc., which owns shares of TXU.
Smart move, something The Carlyle Group knows much about. PEU's infiltrated most bastions of power in the last decade, a time of explosive growth. It shouldn't be a surprise they're governing environmental groups.

Who knew the EDF wanted to make The Carlyle Group more profitable with an EcoValueScreen? Are we down the Rabbit Hole? Is it time to Scream?

Update: EDF reported how they helped KKR become more profitable.