New Yale SOM Online Case Looks at the Controversial Buyout of a Texas Energy Company

On February 23, 2007, James D. Marston, regional director of Environmental Defense's (EDF) Texas Office and head of the Texas Climate Initiative received an unusual call. Representatives of two private equity firms, TPG (Texas Pacific Group) and KKR (Kohlberg, Kravis and Roberts), had agreed to a deal with the management of TXU for a buyout of the Texas utility. Marston knew TXU well, EDF had been in litigation with the company trying to prevent their controversial plan to build 11 new coal-powered electrical generation plants. Now, Marston was being asked by the private equity firms to “bless” the deal for TXU in return for environmental concessions. Marston’s mind reeled. What was the value of EDF’s endorsement? What environmental concessions could he ask for? What should his negotiation strategy be?

The Yale SOM case writing team has created a case that asks students to advise Marston as he prepares for these unprecedented negotiations. Besides the intriguing subject matter, the Environmental Defense/TXU case is one of a new type of business school cases SOM has pioneered. Rather than a “cooked” narrative summarizing the background to the negotiations, the case team prepared a web site that linked to a plethora of “raw” documents that would have been available to a person advising Marston. Students were confronted with news accounts, analyst’s reports, EDF news releases, videos, maps, 10Ks and stock charts as they tried to put together a strategy that would help Marston in his negotiations.

During the past year, the case team has created 17 raw cases like EDF/TXU. “Raw, multimedia cases are much more realistic way of looking at a management dilemma,” according to Jaan Elias, SOM’s Director of Case Study Research. “This type of case exposes students to the wide variety of information sources that they will come across during their careers. It also forces the students to weigh the credibility of sources and sift through superfluous material to find what they need to perform an analysis.”

The Yale SOM case team created the EDF/TXU web case for the 2008 Walter V. Shipley Business Leadership Case Competition which is sponsored by the Aspen Institute Center for Business Education and JPMorgan Chase. The competition pits teams from eight leading business schools, with over 250 second-year MBA students at these schools taking part. (Yale did not compete since it developed the case and is supplying a judge.) This is the first Yale SOM raw case to be used outside the school and the reviews by the student competitors have been enthusiastic.

View the EDF/TXU case.