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Since December, utility stocks have been star performers, aided by takeover speculation, optimism about the economy, and momentum-based buying. So far this year, the S&P 500 Utilties sector (which has an equivalent exchange-traded fund, or ETF (AMEX: XLU)) has gained 13.3% and has outperformed the S&P 500 index by almost nine percentage points.

At this point, however, several factors suggest the run-up may be overdone and the shares due for at least a short-term pullback.

For one thing, May is a seasonably weak month for utilities, with the sector wracking up a median loss of 1.8% relative to the broad benchmark over the past 15 years.

There is also a noticeable pickup in newsflow related to the issue of greenhouse gases and their contribution to global warning. While any new measures to address this problem could be a long way off, the threat alone could hurt sentiment in a sector where investors are already quite optimistic.

Finally, while the prospect of takeovers in the sector might provide a bullish floor for prices, there appear to be regulatory and other efforts afoot that could lessen the sector's attractiveness to buyout firms.

In Texas, for example, the House yesterday approved a bill that "would cap the amount of power generation a company is allowed to have in certain regions of the state," according to Bloomberg. This stems from criticism that companies like TXU Corp. (NYSE: TXU), the state's biggest producer and the object of a $32 billion takeover bid, have "too much clout."

In sum, while the sector has burned rather brightly of late, it might be poised to blow a fuse in the near term.

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The rumor is that Carlyle is paying MBA graduate students salaries of $350K+. Given the action in the space -- with billions going to buy mega companies like TXU Corp. (NYSE: TXU) and First Data Corp. (NYSE: FDC) -- I'm not surprised.

I guess the question is: What do private equity firms look for in an MBA?

I had a chance to talk to Charley Polachi, who is a seasoned recruiter and founding partner of Polachi & Company. He has conducted a variety of searches for CEOs, partners and board members for private equity clients.

Polachi says that recruiting for the private equity world is changing quickly. "The traditional model was that a new recruit would be mentored for seven years or so," he said. "This transferred the knowledge and the protégé would eventually become a partner. It was essentially an apprenticeship."

However, with the surge in private equity dollars, there is no time for this. What's more, firms need to hire many more people so as to put the money to work. "We are also seeing an increase in poaching of talent from rival firms," said Polachi.

What kind of candidates do private equity firms look for? As should be no surprise, they want top students from top schools.

But there needs to be more. That is, a candidate should also have real-world experience. "I think sales experience can be very helpful," said Polachi. "A big part of private equity is pitching deals to clients. It's not so much working with financial models and spreadsheets."

Polachi said it is also smart for MBA students to try to get a summer internship at a private equity firm. "I know a student who did an internship for free," said Polachi. "And, after he left school, the firm hired him."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

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MAJOR PAPERS:

• The Wall Street Journal reported that Marshall & Ilsley Corporation (NYSE: MI) is in negotiations to spin off its Metavante payment processing unit with Warburg Pincus, in a deal valued at about $4B.
• Former Starwood Hotels Worldwide Inc (NYSE: HOT) CEO Steve Heyer's unexpected departure from the company, without his $35M severance package, helped fuel speculation that Starwood might still be a buyout target, reported the Wall Street Journal.
• Takeover talks between TXU Corp (NYSE: TXU) and Blackstone have "fallen apart," reported the Financial Times. TXU was looking for a superior offer than the $69.25 per share offer it received from Kohlberg Kravis Roberts and Texas Pacific Group.

• The New York Times reported that Starbucks Corporation (NASDAQ: SBUX) is being accused by the National Labor Relations Board of breaking the law in an attempt to block union activity.
• EchoStar Communications Corp. (NASDAQ: DISH) and Google Inc (NASDAQ: GOOG) are partnering to create an automated system for buying, selling, delivering and measuring the impact of TV ads running on EchoStar's DISH Network, reported the Economic Times.
  
• Amgen Inc (NASDAQ: AMGN) has delayed plans to build a EUR820M manufacturing plant in Cork, Ireland by two years, reported the Irish Times.

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Kohlberg Kravis Roberts & Co., reportedly has BCE Inc. (NYSE:BCE), the owner of Bell Canada, in its sights.

A deal for the telecom company would be worth about CAD$30 billion (over USD$25 billion), making it the largest acquisition in Canadian history and one of the largest buyouts ever, according to the Globe and Mail newspaper. KKR is looking for Canadian partners such as the Ontario Teachers' Fund since foreign firms are prohibited from owning more than 46% of a telecom company's voting shares.

Shares of BCE were up 12% pre-market trading. They have dropped about 4% this year.

KKR already has its hands full:

The New York-based buyout firm is part of the $45 billion TXU Corp. (NYSE: TXU) deal, the largest buyout ever. KKR also is among the companies in the hunt for Australian retailer Coles Group Ltd. Last month, it agreed to buy Dollar General Stores Corp. (NYSE: DG).

Apparently, there's no limit to the number of multi-billion acquisitions that KKR can juggle at the same time.

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Texas Pacific Group's (TPG) David Bonderman and KKR's Henry Kravis got a civic lesson yesterday. These buyout wizards met with the Texas House Committee on Regulated Industries on the issue of TXU (NYSE:TXU). Four proposed board members of TXU were there too: Don Evans, former U.S. Secretary of Commerce; James Huffines, Chairman of Plains National Bank Central Region; Ambassador Lyndon Olson, a former member of the Texas Legislature; and William Reilly, former Administrator of the U.S. Environmental Protection Agency.

The message: don't pass legislation that would require a regulatory review of the mega deal.

Hey, but don't politicians like to intervene -- especially when it concerns what consumers may ultimately pay?

Definitely. And it does look like the legislation is getting traction.

This does not mean the deal is doomed. Basically, it looks like TPG and KKR will need to make even more concessions, such as selling off assets and not piling debt on the regulated business units. TXU will also need to report its quarterly filings to the SEC.

The big problem is that the legislation will probably delay the process even more. And that's why TXU's stock has been lagging.

While the buyout offer is $69.25, TXU's stock is currently trading at $63.90.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

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The $45 billion deal for TXU (NYSE: TXU) has been dragging lately. It's certainly a complex deal and involves some novel approaches, such as agreements with environmentalists.

But this does not seem to be a problem for the Blackstone Group and Carlyle. According to a recent Reuters report,it looks like they are preparing a bid for TXU.

Typically, once a deal is agreed to, rival private equity firms do not disrupt things. There's kind of a gentlemen's agreement.

But lately, such niceties are just that.

Of course, a bidding war for a high-priced deal certainly has its risks. After all, that was the problem with the massive RJR deal back in the 1980s.

Also, keep in mind that TXU has a 50-day "go shop" provision. So it makes sense that other buyers are taking a look -- which doesn't mean another bid is necessarily a slam dunk.

And Wall Street is skeptical. TXU's stock was up only up $0.89 to $63.64 in today's trading.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

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TXU Corp. (NYSE:TXU) is now the popular girl whom everyone wants to take the the prom. Not bad for a stodgy utility company.

The Blackstone Group, Carlyle Group and Riverstone Holdings may make a counter offer for the Texas power company which has agreed to be bought out by Kohlberg, Kravis & Roberts and Texas Pacific Group in a $32 billion private equity deal, the biggest ever, according to Reuters. The buyout firms are still in early discussions about a potential bid and it may not happen.

As part of the KKR/Texas Pacific deal, TXU has until April 16 to solicit and consider other offers, Reuters said.

Blackstone, Carlyle and Riverstone should get the blessing of the environmental groups that blessed the KKR/Texas Pacific Group bid. That was a PR coup that will help the companies gain leverage with regulators.

Electric utilities generate strong cash flow which private equity firms like. It's only a matter of time until the next deal emerges.

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