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TXU sets asset sales to cut debt, shares soar

27 April 2004 – TXU Corp. has will sell a gas pipeline unit and its Australian energy operations for $2.5bn in a bid to slash debt and bring it back to its roots as a Texas power company.

The move, which sent TXU shares up 13 per cent, is the first major initiative by new Chief Executive John Wilder to put the company back on solid financial footing after the collapse of its European operations in late 2002 triggered a crisis of confidence in the power industry stalwart.

In separate deals, Dallas-based TXU agreed to sell its TXU Australia unit to state-run Singapore Power for about $2bn and its TXU Fuel gas pipeline unit to Energy Transfer Partners, which operates gas pipelines and markets propane, for $502m.

“We’re not an international company,” Wilder told reporters on a conference call. “We’re a local, kind of Texas-based company and we do not have the management capabilities to run a business 5000 miles away.”

The TXU Australia deal is valued at $3.72bn including debt being assumed by Singapore Power.

The company also plans to sell TXU Gas Co., its Texas natural gas transmission and distribution business, and raise at least the book value amount of $1.37bn, excluding debt. It expects to close the deal by the end of the year.

The company said it would use the proceeds from the deals to buy back preferred shares and cut debt by $5.8bn, or 42 per cent, by the end of the year.

Like many of its peers in the battle-scarred US power sector, TXU is in the process of rebuilding. It has struggled with credit rating downgrades and was forced to slash its dividend and sell its British assets after its European unit collapsed in late 2002.

The sale of TXU Australia, expected to close in the third quarter, should result in a pre-tax gain of about $375m. TXU last September said it was considering a partial float of the business to pay down debt and fund growth. But later it deferred that plan pending a review of the entire company by Wilder, who was named chief executive earlier this year.

TXU joins several US utilities, including Duke Energy Corp. and Aquila Inc. , that have bailed out of Australia and other overseas locations in a bid to restore their balance sheets.