First Gen tender offer oversubscribed, but buyer accepts all offers anyway

As covered in a previous post, KKR, an American equity investment firm, submitted a tender offer to purchase up to 205 million shares of First Gen's [FGEN 30.00 7.69%] common stock at P33/share. When the tender offer was made, the price was about 6.5% above the going market rate for FGEN shares, so the prevailing sentiment was that KKR probably wouldn’t have too much difficulty in acquiring the stake that it wanted through the transaction.

According to KKR, as disclosed by FGEN, the tender offer received 262.9 million tendered shares (28% more than KKR originally wanted), and yet KKR decided to waive the 205 million share limit and accept all of the tendered shares at the P33/share price.

KKR’s purchase of 262.9 million shares brought its stake in FGEN up from 12.6% before the transaction, to 19.9% when the block sale to complete the transaction will be processed tomorrow (October 8).

MB BOTTOM-LINE

Rumors have been swirling that the move is just another step in the direction of a potential FGEN delisting. KKR is very bullish on FGEN’s business and its management team, but also on the larger context of the need for FGEN’s product in the Philippines, and the overall direction of the country as a whole to support the investment.

This transaction would drive FGEN’s free float of shares down from the 18.74% it shows as of today, to around 11.4% once completed, and would push FGEN’s free float below its minimum public ownership threshold of 15%. To add fuel to the rumors, Bilyonaryo reported that KKR, in its tender offer documents, reserved the right to develop plans for an “extraordinary corporate transaction”, that KKR defined as “a merger, reorganization or liquidity, involving [FGEN] or any of its subsidiaries''; Bilyo then speculated that “voluntary delisting” could also fit the description of an extraordinary transaction.

Zooming out a bit, if true, the strategy to delist FGEN doesn’t even seem strange given the Lopez Family’s actions after the President attacked and decimated ABS-CBN [ABS 15.84 4.21%] for perceived slights during the 2016 election cycle.

The family’s goal to simplify its corporate footprint and shrink its attack surface serves the dual purpose of making the Lopez Family interests easier to govern for successive generations while also insulating those generations from this potential vector of attack. We saw this strategy in play when the Lopez Family sought to voluntarily delist Lopez Holdings [LPZ 3.20 1.84%] just a few months after ABS lost its Congressional franchise.

While that gambit didn’t work (the PSE signalled its intention to apply the stricter rules relating to delisting to the LPZ case), this tender offer by KKR might just present a convenient opportunity for the family to do with FGEN what it hasn’t yet been able to do with LPZ.

My feeling is that KKR didn’t invest to the level that it did with the expectation that FGEN would conduct a FOO/SRO to retain its minimum public ownership. Let’s see what happens next!

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