The private equity firms Kohlberg Kravis Roberts (KKR) and Texas Pacific Group are lining up a bid for the US utility group TXU Corp in what could be the largest buyout in history.

The deal, which could involve other firms, is likely to be worth more than $32 billion (£16.3 billion).

TXU, which is based in Dallas, is the biggest non-regulated supplier of electrical power in Texas, with about 2.3 million customers.

The deal could be approved as early as Monday morning, with the board of TXU expected to vote over the weekend on whether to agree to a sale.

Shares in TXU surged by more than 15 per cent last night in after-hours trading in New York, to $69.51.

The deal is expected to value the company at about a 20 per cent premium to where the shares have traded recently. Based on its closing share price yesterday, the market capitali-sation of TXU was about $27.5 billion.

TXU also has about $12.3 billion in debt that would need to be taken on by any buyer.

KKR already holds the record for the biggest private equity buyout of all time with its $25 billion acquisition of RJR Nabisco in 1988. The deal has come to epitomise the private equity sector’s ambitions to beat investment banks at their own game.

But private equity has come to the fore again in recent years with a flurry of deals that have threatened to beat KKR’s record-setter.

Most recently, Blackstone Group made a $22.9 billion offer for Equity Office partners, the real estate group. A challenge to the bid from the rival Vornado Realty Trust seems to have disappeared, which would make the Blackstone deal, if it is sealed, the second-biggest of all time.

The low cost of debt and sluggish markets have made the past few years a boom time for private equity players. The remaining eight of the top ten deals by value were struck in the past two years, from Bain Capital’s $21 billion buyout last July of HCA, the healthcare group, to Cerberus Capital’s $11.3 billion acquisition in January 2006 of Albertson’s, the US supermarket chain.

TXU has stirred controversy lately because of its plans to construct several new coal-fired power plants across Texas, which critics say would contribute to pollution in the state. KKR and Texas Pacific are thought to be planning to trim back on these plans.