Dallas-based energy company, together with Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG), two of the nation’s leading private equity firms, and Goldman Sachs & Co., a leading global investment bank, announced today the execution of a definitive merger agreement under which an investor group led by KKR and TPG will acquire TXU in a transaction valued at $45 billion. GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be offered $69.25 per share at closing, which represents a 25 percent premium to the average closing share price over the 20 days ending Feb. 22, 2007.

As a result of this transaction, the newly privatized company will deliver price cuts and price protection benefits to electric customers, strengthen environmental policies, make significant investments in alternative energy and institute corporate policies tied to climate stewardship.

Price Cuts and Price Protection

• 10 percent price decrease resulting in more than $300 million of annual savings for residential customers
• Price protection through September 2008

Stronger Environmental Policies and New Investments in Alternative Energy

• Planned coal-fueled generation units reduced from eleven to three, preventing 56 million tons of annual carbon emissions
• $400 million investment in demand side management initiatives
• Transaction endorsed by Environmental Defense and Natural Resources Defense Council
• Increased commitment to exploring renewable energy sources and investing in alternative energy technologies

Corporate Leadership and Climate Stewardship

• Former U.S. Secretary of State James A. Baker, III will serve as Advisory Chairman to the investment group of new owners
• William Reilly, Chairman Emeritus of the World Wildlife Fund and former EPA Administrator, will join board of directors and lead effort in making climate stewardship central to corporate policies
• Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden, will join the board of directors
• TXU will create an independent Sustainable Energy Advisory Board comprised of individuals who represent the following interests: the environment, customers, Texas economic development and ERCOT reliability standards

Reorganization into Three Independently Operated Businesses

• Three separate and distinct businesses: generation, transmission and distribution, and retail
• Headquarters will remain in the Dallas/Fort Worth area

The acquisition of TXU by the investor group will be accompanied by an environmental focus that will make TXU a leader in conservation and energy efficiency, creating a fundamental change in the Texas electric market. In addition, the company’s new strategic direction will seek to achieve top environmental performance in the industry and greater involvement and dialogue with environmental, government and community leaders.

The private investor group’s long-term investment horizon allows TXU’s board, management and the investor group to formulate a long-term strategy to meet TXU customers’ needs and to respond to the significant energy challenges in Texas.

C. John Wilder, chairman and chief executive officer of TXU Corp., said, “This is a momentous event for our company in our long journey to transform TXU from a former integrated monopoly to high performance businesses. The new ownership and business structure will enable us to better meet the growing energy needs of Texans. The long-term capital, expertise and resources of the investor group will allow us to increase our focus on reliability, lower prices, outstanding customer service and innovative products, and investments in long-term environmentally sound technology. TXU is a proud Texas corporate citizen, and the company will continue to operate with the same commitment and dedication to serving Texas.

“KKR, TPG and the rest of the investor group are all world-class investors who bring valuable experience in the industry. With these long-term and very informed investors, we can execute a new strategy that will allow us to reshape TXU’s program to build new electric generation units,” Wilder continued. “Our new strategy will meet two important objectives: addressing Texas’ immediate and future energy and reliability needs; and doing so in a manner that responds to the desires of policy makers and other key stakeholders to incorporate new technology advancements and conservation.”

Henry Kravis, founding partner of KKR, said, “TXU has outstanding employees dedicated to meeting the increasing long-term energy needs of Texas. We have listened to the various TXU constituencies, including customers, Governor Perry, Lt. Governor Dewhurst, Speaker Craddick, members of the Texas Legislature and those expressing environmental concerns. As a result, we have developed a new vision with management of how we can turn TXU into a more innovative, customer-centric, environmentally friendly company, and we plan to work with management to implement it. Our experienced energy team looks forward to providing strong support for this transformation, including making substantial, long-term capital investments in new innovation across each business – from customer product and service offerings including demand side management, to generation and grid technologies, and superior risk-management strategies. We intend to hold this as a long-term asset, and we recognize the need to balance growth with environmental considerations.”

David Bonderman, founding partner of TPG said, “With the support of the government and environmental leaders, TXU’s new approach will better manage the delicate balance between the energy needs of a growing Texas population, responsibility to the environment and the cost concerns of Texas businesses and residents. We believe we’ve designed an innovative plan that meets the needs of all constituencies and reflects TXU’s enhanced commitment to the shared goal of making Texas the most responsible, state-of-the-art electric market in the nation. We look forward to working with TXU’s experienced management team and talented employees in the years ahead to make this exciting vision a reality.”

Rich Friedman, Global Head of Goldman Sachs' Merchant Banking Division, said, “This transaction serves as a model for long-term environmental stewardship. By investing in new technologies, encouraging conservation and reducing carbon emissions and pollutants, TXU is on the path to being a 21st century power company. We, together with KKR and TPG, are proud to have been able to play a constructive role in the development of the significant environmental elements that help set this transaction apart.”

Price Cuts and Price Protection

As a result of this transaction, TXU Energy will provide more than $300 million in annual savings through a 10 percent price reduction for residential customers in its traditional service area who have not already selected one of TXU Energy’s other lower-priced offers. Customers will begin receiving a 6 percent reduction in approximately 30 days and an additional 4 percent reduction at the close of the transaction. This will strengthen TXU Energy’s position as having the lowest prices among the major providers in their traditional markets. An unprecedented level of price protection will be in place through September 2008, ensuring that these customers receive the benefits of these savings through two summer seasons of peak energy usage. Furthermore, TXU Energy expects to aggressively compete state-wide to deliver benefits across all customer segments.

Stronger Environmental Policies and New Investments in Alternative Energy

Planned Coal Units Reduced from Eleven to Three, Preventing 56 Million Tons of Annual Carbon Emissions

This scale-back represents a 75 percent reduction in new coal capacity. In addition, the company is committed to continuing its efforts to meaningfully reduce existing carbon emissions and seeks to join the United States Climate Action Partnership (USCAP). USCAP is a broad-based group of businesses and leading environmental groups organized to work with the President, the Congress and all other stakeholders to enact an environmentally effective, economically sustainable and fair climate change program. As part of the company’s support for USCAP, TXU is also pledging to support the mandatory cap and trade program to regulate carbon emissions.

To satisfy ERCOT’s requirement for immediate additional capacity to meet the state’s increasing electricity demand, TXU expects to build two coal units at the Oak Grovesite and one coal unit at the Sandow site. TXU will immediately seek to suspend the permit application process for the other eight units and withdraw them once the transaction closes. TXU does not intend to apply or reapply for permits to build additional coal units utilizing current pulverized coal-fueled technology.

$400 Million Investment in Demand Side Management Initiatives

TXU will implement an aggressive demand reduction program through a $400 million investment in conservation and energy efficiency activities over the next five years.

Transaction Endorsed by Environmental Defense and Natural Resources Defense Council

KKR, TPG and the investor group are committed to addressing TXU’s environmental issues through substantial new investments in research and demand side management initiatives and a 75 percent reduction in planned new coal capacity. Recognizing this, key environmental groups are supporting the transaction.

Fred Krupp, President of Environmental Defense, said, “This is one of the most significant developments in America's fight against global warming. Environmental Defense commends KKR and TPG for not only dropping TXU's applications for eight proposed coal plants in Texas, but also for the many other commitments they have made to reduce air pollution and global warming emissions, including their support for a mandatory federal cap and trade program to regulate carbon emissions, doubling TXU’s expenditures on efficiency measures and their overall desire to rebuild TXU as a leader in the clean energy economy.

“The debate over this issue has been a top priority for Environmental Defense and we plan to work just as hard with the new TXU to implement this agreement. We also look forward to working closely with TXU as a member of its planned Sustainable Energy Advisory Committee and to settling our federal lawsuit against TXU,” concluded Krupp.

“The NRDC fully supports this transaction and the new company's support for mandatory global warming legislation. This turnaround marks the beginning of a new, competitive focus on clean, efficient, renewable energy strategies to deliver the power we need while cutting global warming emissions,” said Frances Beinecke, President of the Natural Resources Defense Council (NRDC). “It is a big step forward for the State of Texas and for the American energy economy as a whole.”

Increased Commitment to Exploring Renewable Energy Sources and Investing in Alternative Energy Technologies

As a private company, free from the short-term financial pressures affecting all public companies, TXU will be able to accomplish important goals for customer service innovation and new generation technology development on a scale and schedule that would otherwise not be possible.

The investor group is grateful for Governor Perry’s commitment to a long-term reliable supply of energy for Texas and his advocacy for investment in clean energy alternatives, such as IGCC. TXU is committed to the development and deployment of advanced technologies with a commitment to exploring IGCC’s potential to meet Texas’ reliability requirements. With the support of the Governor, the company is evaluating the dedication of an attractive site for the exploration of clean coal technologies and partnership with technology leaders.

TXU will reduce mercury (Hg) emissions, sulfur dioxide (SO2) and nitrogen oxides (NOx) by 20 percent from 2005 levels, as previously committed, through reductions at existing units and installation of emission controls on the new Oak Grove and Sandow units.

TXU will reduce its own carbon emissions by increasing efficiency of its generating facilities by up to 2 percent.

TXU will become a leader in providing electricity from renewable sources by more than doubling its purchase of wind power to more than 1,500 MW, maintaining its status as the largest buyer of wind power in Texas. TXU will also promote solar power through solar/photovoltaic rebates.

The company also intends to join the FutureGen Alliance, a non-profit consortium of companies supporting FutureGen, the U.S. Department of Energy project intended to create the world’s first near-zero-emissions fossil-fuel power plant.

Corporate Leadership and Climate Stewardship

Former U.S. Secretary of State James A. Baker, III Will Serve as Advisory Chairman to the Investment Group of New Owners

Secretary Baker brings an enormous amount of business experience, legal and political acumen, and leadership.

“One very important reason for my participation in this transaction is the serious and substantial commitment to a new direction for TXU that takes into account my concerns about the environment,” Baker said. “Two years ago in my hometown of Houston, I said publicly that we need to pay more attention to ways to protect our environment and that we needed to begin an orderly transition to cleaner energy. TXU's new approach on these issues is a critical and responsible step in reducing Texas' contribution to climate change. I look forward to advising the new owners of TXU in their efforts to foster a sustainable environmental model that will permit responsible economic development and that will serve our state and nation well.”

William Reilly, Chairman Emeritus of the World Wildlife Fund and Former EPA Administrator, Will Join Board of Directors and Lead Effort Making Climate Stewardship Central to Corporate Policies

To guide the adoption of corporate governance policies that tie the company’s operations and goals to environmental stewardship, former Environmental Protection Agency Administrator William Reilly will join the board of directors.

Three Prominent Texans Will Join the Board of Directors

Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden will join the board of directors.

TXU Will Create an Independent Sustainable Energy Advisory Board Comprised of Individuals Who Represent the Following Interests: The Environment, Customers, Texas Economic Development and ERCOT Reliability Standards

“To enable American energy independence and energy security, it is important to develop technologies that utilize America’s vast energy resources with technologies acceptable to the public. We look forward to working with the new Sustainable Energy Advisory Board to develop energy solutions that meet the needs of Texas,” said Mike McCall, CEO of TXU Wholesale.

Reorganization into Three Independently Operated Businesses

Three Separate and Distinct Businesses: Generation, Transmission and Distribution, and Retail

With the long-term focus and investment enabled by these world-class investors and private ownership, TXU can transform its operations into three independently managed businesses. This will better position each business to focus on the unique customers that it serves. Consequently, these businesses will have distinct names and separate management teams, headquarters and boards of directors.

• Generation: Luminant Energy will be the new company name, reflecting its new direction and encompassing TXU’s power, wholesale, development and construction businesses
• Transmission and Distribution: TXU Electric Delivery will be renamed Oncor Electric Delivery
• Retail: TXU Energy will retain use of its name for the retail business

Headquarters for each of the three businesses will remain in the Dallas/Fort Worth area.

About the Transaction

Based upon the unanimous recommendation of the Strategic Transactions Committee comprised of TXU independent directors, the TXU board of directors has approved the merger agreement and has recommended that TXU’s shareholders adopt the agreement.

Under the terms of the agreement, TXU shareholders will be offered $69.25 in cash for each share of TXU common stock held. This represents a premium of 20 percent to the closing price of TXU shares on February 22, 2007, the last trading day before press speculation about the transaction, and a 25 percent premium to the average closing share price over the 20 days ending on February 22, 2007.

The funding of the transaction will not result in new debt incurred at the regulated utility business.

After the transaction, the company’s electric utility, generation, wholesale and retail electric activities will remain under the same jurisdiction of the Public Utility Commission of Texas, Nuclear Regulatory Commission and Federal Energy Regulatory Commission.

To avoid any future concerns regarding bidding in the wholesale market, the company intends to negotiate a “safe harbor” agreement with regulators.

Under the merger agreement, TXU may solicit proposals from third parties through April 16, 2007. TXU’s board of directors, with the assistance of its independent advisors, intends to solicit proposals during this period. There can be no assurances that the solicitation of proposals will result in an alternative transaction. TXU does not intend to disclose developments with respect to this solicitation process unless and until its board of directors has made a decision regarding any alternative proposals.

TXU, KKR, TPG and the rest of the investor group expect to close the transaction in the second half of 2007, subject to receipt of shareholder approval and required federal regulatory approvals, as well as satisfaction of other customary closing conditions. There is no financing contingency to the transaction.

The consortium of investment banks providing committed financing to the investor group in support of the transaction includes Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley.

Credit Suisse Securities and Lazard acted as financial advisors to TXU in connection with the transaction. Sullivan & Cromwell LLP and Cravath, Swaine and Moore LLP acted as outside legal advisors to TXU and the Strategic Transactions Committee, respectively, in connection with the transaction.

Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley acted as financial advisors to the investor group. Simpson Thacher & Bartlett LLP, Vinson & Elkins LLP, Covington & Burling LLP, Hunton & Williams LLP and Stroock & Stroock & Lavan LLP acted as legal advisors to KKR, TPG and the investor group.