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Graphic Element, Right Gutter

But the Wall Street Journal's Homan Jenkins Says "No"...or at least "Whoa".

You had to be there to know why the TXU deal seems like being there all over again. It was just a decade ago that the tobacco industry and its enemies rolled up to Congress in a smoke-filled limo and dropped off a $368 billion settlement of all outstanding legal and political issues, including federal regulation of tobacco.

Peace was at hand. The cigarette wars were over. The industry had surrendered. On the side of the states and their private trial lawyers was Dickie Scruggs, brother-in-law of Trent Lott, and Hugh Rodham, brother of First Lady Hillary Clinton. Matthew Myers of the Campaign for Tobacco-Free Kids helped negotiate the deal. The American Cancer Society lent its imprimatur. Every lobbyist and law firm in Washington had been retained to sell the package to legislators. Message to Congress: Here is our new tobacco policy. Enact it into law.

These memories came irresistibly to mind after Monday's $32 billion Texas utility buyout. It features two of the best-connected LBO groups, KKR and Texas Pacific. Lending a healthy green glow was an orchestrated endorsement from the activist organizations Environmental Defense and the Natural Resources Defense Council. William Reilly, a former EPA administrator under President Bush's father, will serve as the deal's front man. Former Secretary of State James Baker III will play the role of "advisory chairman." For every salient interest group, there was a bonbon: Greenies will get a promise to shelve plans for eight new coal-fired power plants, build wind farms and lobby Congress for national carbon limits. Consumers and politicians will get a promise of lower electricity rates.

In the delight of the moment, nobody presumably was supposed to notice a contradiction between these promises. With so many of the grand and green around, they were just supposed to be swept off their feet.

We hope we have sufficiently telegraphed the punchline. The grand tobacco settlement of 1997 ran directly into an unexpected buzzsaw in the form of congressional self-respect. In fact, never was witnessed such a bipartisan rush to be seen stiff-arming big, powerful interest groups that had expected to be lauded with garlands for their handiwork. Newt Gingrich and Bill Clinton were as one in turning up their noses. It was back to court for the cigarette industry and those seeking a share of its revenues in return for delivering an end to harassment.

No, the buyout proposal for Texas utility TXU has nothing like the operatic scale and bathos of the tobacco melodrama, nor players quite as raw and colorful. But the deal was hardly a few hours old before it began to smell like last week's fish.

One wonders, for instance, what the green groups are expecting to receive, indirectly, for their endorsement? It quickly emerged that TXU already had intended to spike six of the planned coal plants. Noticed too was the fact that TXU enjoys considerable market power in Texas. What's going to stop rates from rising in the future as Texas outstrips the available power supply, especially with heavy restrictions on new coal plants? Good question. And, for TXU shareholders, don't you get the feeling that the political phalanx behind the deal is meant to deter another bidder from beating what is perhaps, under the circumstances, a lowball offer?

Back in the day, the 1997 tobacco settlement turned out to be a giant miscalculation by the cigarette industry. What it imagined as a political masterstroke was quickly seen as a corrupt bargain between the industry and the trial lawyers, with a bit of loose change sprinkled before a bunch of cheaply bought "public interest" pilot fish.

Private investors have every right to bid for a power plant company, and the power plant company shareholders have every right to sell. It's their money and their property, after all. But it might have been wiser to market the purchase of TXU as a business proposition strictly, without the meretricious window dressing. Wasn't there something a tad smarmy and condescending in the way TXU's bidders laid out their tableaux of trinkets for the politicians and interest groups? And something fundamentally unserious in their assumption that the interested parties would gobble these trinkets up without noticing the lack of an intelligible answer about how to meet Texas's future energy needs? Private equity has been on a roll lately, but that roll may have hit its first speed bump if this is the quality of its political gamesmanship.

But at least the nature of the private equity revolution is coming into somewhat clearer focus. Firms like KKR and Texas Pacific have a reputation for being freebooting capitalists, and indeed have lately become capitalism's answer to the increasing regulatory and political burdens placed on publicly traded corporations. Yet this picture is only partly complete.

These groups are political operators as much as market operators, as perhaps they must be. David Bonderman, head of Texas Pacific, and his wife gave nearly $200,000 to Democrats and allied groups in the midterm election cycle. KKR, under its chief Henry Kravis, has been a reliable fount of funding for Republican candidates. Two firms on the sidelines (so far) of the TXU bidding, Carlyle and Blackstone, virtually created the modern buyout industry by stocking themselves with well-connected former government types.

Now we'll find out if these shrewd private equity operators are really any better equipped to deal with a relentlessly more politicized business environment than public companies have shown themselves to be. Once the buzz from Monday's razzle-dazzle has worn off, don't be surprised if the answer turns out to be "no."