About two weeks ago, Fred Krupp, the president of a nonprofit advocacy group called Environmental Defense, received an unusual phone call.

William K. Reilly, the former administrator for the Environmental Protection Agency under President George H. W. Bush., was on the other end. But before Reilly would explain the reason for his call, he said he needed an assurance from Krupp that he would keep the conversation confidential.

After receiving such a pledge, Reilly dropped a bombshell: The TXU Corp., the Texas energy giant that had become the whipping boy of the nation's biggest environmental groups, was in talks to be sold to a group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group, two large private equity firms.

Reilly, who now works for Texas Pacific, said he wanted to negotiate a cease-fire. If the investors succeeded in taking over TXU, Reilly said, they would commit to scale back significantly on TXU's plan to build 11 new coal plants and adhere to a strict code of conduct. In return, he wanted the support of Krupp and his peers, who had spent the past several months waging a bitter and public war against TXU.

Sunday night, after several weeks of marathon negotiations that brought together both environmentalists and Wall Street bankers, the board of TXU was moving toward a vote to accept the bid from Kohlberg Kravis and Texas Pacific for about $45 billion, which would mark the largest buyout in history.

The deal would be watershed not just for its size, but for the confluence of business decisions and environmental concerns that drove the ultimate transaction.

The firms seemed as driven to reshape TXU's strategy as much for environmental concerns as for business ones. Because private equity firms are unregulated and historically have valued their privacy, neither Kohlberg Kravis nor Texas Pacific were eager to become an "enemy combatant" of the environmental groups, people involved in the talks said. Reducing the coal plant initiative will also free up billions of dollars in planned spending that the firms will be able to use for other projects or to help finance the transaction.

Within TXU, the controversial plan to build a raft of coal plants had become so damaging to its stock price that its board had been privately weighing a plan to scrap part of its coal plant development project, according to people involved in the talks. Shareholders sent the stock on a roller coaster ride from more than $67 a share to as low as about $53 over concerns about the risk and vast expenditure.

Indeed, it was the quick drop in TXU's stock price that got the attention of Kohlberg Kravis and Texas Pacific, which look for undervalued companies and try to turn them around. Together, both firms approached C. John Wilder, TXU's chief executive, in early to mid-January with an offer for the company, these people said.

At the time, neither Kohlberg Kravis nor Texas Pacific told TXU about its ambition to scale back its controversial coal plants. But behind the scenes, both firms had been developing a new strategy for the company with the help of Goldman Sachs, their lead adviser.

Goldman Sachs has been a longtime proponent of reducing carbon emissions. Its former chief executive, Henry M. Paulson, now the secretary of the Treasury, was also the chairman of the Nature Conservancy, an environmental activist group.

Texas Pacific's co-founder, David Bonderman, is member of the board of the World Wildlife Fund, and Reilly is chairman emeritus. Bonderman called Reilly to help work on the deal and create what they ultimately called "The Green Group" – a committee of advisers that included Reilly, Roger Ballentine of Green Strategies and Stuart E. Eizenstat, the former chief domestic policy adviser for President James Carter.

"We didn't want to be on the wrong side of history," said a person involved in the bidding group who was not authorized to talk about the transaction before its formal announcement, which is expected today.

Under the terms of the deal, Kohlberg Kravis and Texas Pacific will pay $69.25 a share for TXU, people involved said. Goldman Sachs, Morgan Stanley, Lehman Brothers and Citigroup are expected to take small stakes in TXU as well as help finance the debt with J.P. Morgan Chase. In addition, the investor group will assume more than $12 billion of TXU's debt.

And the group will be getting more than just a utility. TXU is in the midst of an experiment to run broadband internet over its power lines as part of a venture with Current Communications.

Both TXU, which was advised by Credit Suisse, and the investor group spent weeks holed up in three conference rooms at the Gaylord Texan, a garish hotel just outside of Dallas. With armies of bankers and lawyers that frequently numbered more than 40, the group negotiated the buyout deal, including an unusual provision that will allow TXU to seek higher rival bids over the next 50 days. This clause could potentially create a wild bidding war.

But perhaps the most difficult talks were with the environmentalists, who often seemed more like Wall Street negotiators than green activists.

Krupp of Environmental Defense used his conversation with Reilly as an opportunity to negotiate even harder for further concessions. The men agreed that Krupp's lieutenant, James D. Marston, who was leading the charge against TXU in Texas, would meet with Reilly and other representatives of the buying group.

So last Wednesday, Marston flew to San Francisco, where he found himself face to face with Reilly over breakfast at the Mandarin Oriental. There, over scrambled eggs and croissants, Reilly laid out a plan that included reducing the coal plants from 11 to three.

Then the men went to Texas Pacific's offices overlooking Alcatraz and the San Francisco Bay for a day-long negotiation that stretched until early the next morning. The group, which included Reilly, Bonderman and Fred Goltz of Kohlberg Kravis, worked out a "10-point plan" that included a commitment by the investors to return the carbon-dioxide emissions by TXU to 1990 levels by 2020 and support a $400 million energy efficiency program.

When an agreement was finally struck, at 1 a.m. the next morning, Reilly grabbed a bottle of pinot noir from his colleague's office to toast the group. But he couldn't find a bottle opener. So he ran downstairs back to the Mandarin Oriental to borrow one.