is being questioned about its broken promises to investors.
The Texas-based utility disclosed late Monday that the
Securities and Exchange Commission
is seeking information about a huge dividend cut that rattled Wall Street last month. TXU slashed its quarterly dividend by 80% on Oct. 12, less than a week after CEO Erle Nye promised -- on three separate occasions -- that the dividend was safe.
After rallying from a decade low on those promises, the stock plummeted 31% when the dividend cut was made public. The stock, which climbed 1.1% to $15.57 Monday, has yet to approach the $40 share price TXU last saw before an earnings shortfall, triggered by trading woes in Europe, and the dividend cut last month.
Industry experts said that TXU's dividend reversal shattered what was left of any credibility that remained for a company that already had made serious missteps in Europe.
"I would assume that there are some fairly upset shareholders out there," one utility fund manager said.
Those shareholders now are being asked to approve a balance sheet maneuver that will allow the company to keep up with even its diminished dividend plans. TXU wants to transfer some equity into a surplus account so holders can receive even the smaller dividend payment. Texas law requires companies to pay all dividends from surplus accounts -- something TXU no longer has after writing off its failed investment in Europe.
Although TXU's January dividend will not be affected, the company plans to call for a special shareholder vote to replenish its surplus account so that future dividends can be paid.
TXU also announced Monday that it has inked a deal with DLJ to provide the company with additional liquidity. TXU issued new exchangeable notes, paying 9% interest, to DLJ in exchange for $750 million. The bank can trade the notes for TXU common stock, priced at $13.75 a share, at any time it wishes. Such a transaction would result in a 17% dilution to the company's stock.
"DLJ also gets a TXU board seat out of this," said Peter Cohan, a Massachusetts author and investment strategist with no position in the stock. "And the higher the stock goes, the more valuable that exchange privilege becomes. That looks like a pretty sweet deal for DLJ."