Monday, February 26, 2007

Oscar's Reach

I suspect I'm not the only one wondering this morning if it was entirely coincidental that the leveraged buyout of one of the country's largest electricity generators, TXU, came together around a proactive climate change agenda on the same weekend that the film of former Vice President Gore's presentation on climate change collected an Academy Award. The indirect connection is obvious: climate change has become one of the biggest issues of our times, and both of these events reflect that reality. At the same time, it's tempting to see a causal link between the influence of Mr. Gore's documentary and the recognition by KKR and its partners that stakeholder concerns about the global-warming impact of TXU's coal power plant construction program could put their entire transaction at risk.

The New York Times' article on the TXU deal makes fascinating reading. It illustrates the attention that TXU's emissions profile received in the structuring of this private equity transaction, and it describes the contacts between the prospective buyers and key non-governmental organizations, such as Environmental Defense and the Natural Resources Defence Council. Although the deal will still have to be approved by regulators and TXU's shareholders, its case history could provide the template for all future large, carbon-intensive transactions of this type.

I don't think it overstates matters to suggest that "An Inconvenient Truth" played a role in this. Released in a year that was among the warmest on record, less than 12 months after hurricanes devastated Louisiana and Mississippi, the movie did more than just rehabilitate Mr. Gore's public image. It provided a context for the odd weather that Americans are routinely experiencing or seeing on the evening news, at time when the pivotal Baby Boomer generation appears to be going green. I can only wonder how many of the investment bankers working on the TXU deal saw the film in a Manhattan cinema and recognized its business implications. Had it been released a decade ago, it would have been written off as alarmist ravings. Now, with an Oscar under its belt, it could get another run in theaters, and will certainly attract more viewings on DVD, perhaps becoming as embedded in the Zeitgeist as "The China Syndrome" did in the late 1970s.

Last night's award came in the middle of an otherwise lackluster broadcast. But even before the nominees for Best Documentary were read out by Jerry Seinfeld, Mr. Gore took the stage with Leonardo DiCaprio to deliver an environmental message and describe the Academy's efforts to make the production greener--along with teasing the audience about his Presidential aspirations. His message about a manageable climate crisis and the need for political will to address it was delivered to a sea of nods, and if it had a similar effect on the program's enormous global audience, it could cause further ripples beyond Hollywood. Whether there's any causal connection between all this and the structure of the TXU deal, the Global Warming Oscar--for all its pop-culture triviality--joins a growing list of affirmations of the problem, including the Stern Report and IPCC Fourth Assessment Review. Business is clearly taking notice.

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