Piki’s ‘poison pills’ can be antidote to Gabby’s woes

There’s so much brouhaha surrounding Piki Lopez’s so-called “poison pills” embedded in the multibillion-peso deals between Lopez-led First Gen Corp. and tycoon Enrique Razon’s Prime Infra.

In public, Piki is seemingly being demonized for allowing such provisions when he entered into these big-ticket transactions with Razon, but in reality, this is not an out-of-this-world practice in business. 

Many of the country’s conglomerates put a so-called key man clause or change-of-management-control provision when they enter into partnerships.

And yet, these two “poison pills” – as the Lopez majority calls them – are at the center of the ongoing family feud between Piki and his cousins, led by Gabby Lopez, the third generation in Don Eugenio Lopez Sr.’s bloodline.

But looking into the different aspects of this ongoing battle royale, I realized that Gabby and his camp may be too fixated on what’s in front of them: the “poison pills” and the cost to the Lopez Group.

Perhaps they’re being too emotional, having been used to showbiz, with all the drama and hype.

Little do they realize that the two “poison pills” may actually be an antidote to their woes.

How so?

First of all, it’s not the end of the world if these provisions are triggered should the Gabby-led faction, hypothetically, succeed in removing Piki from First Gen.

According to the signed agreements with Razon: if a change of management control with respect to First Gen occurs during the construction period of the Wawa and Pakil projects and until the first anniversary of their commercial operations date, whichever is later, Prime Infra shall have the right to cause First Gen to sell its Prime Hydro shares to Prime Infra at a 25 percent discount on the purchase price, amounting to approximately P15.5 billion.

Additionally, if Prime Infra exercises such right, it may also cause First Gen to sell its remaining shares in the gas plants to Prime Infra at the same 25 percent discount, amounting to approximately P8 billion.

That’s a total of P24 billion in penalties if these provisions – supposedly requested by Prime Infra – are triggered.

However, in the grand scheme of things, P24 billion is not such a gargantuan amount, compared to the total amount that Razon will have to pay the Lopezes if he acquires 100 percent of First Gen’s gas business – P59 billion!

This is how I computed it. 

At P83 billion, which is the implied total value of the gas plants based on First Gen’s 60 percent sale price to Prime Infra, a P24 billion discount would still translate to P59 billion, which would eventually benefit the shareholders.

That’s P59 billion! And it’s still a decent amount if it means (1) an end to the family feud and (2) a pot to be divided among all the shareholders, including the cousins.

Gabby’s camp must realize that the gas plants, though well maintained, are old and no longer sit on advantageous and lucrative long-term contracts they once held when the Lopezes owned Meralco.

In short, it’s not such a crown jewel anymore, although for Razon, it makes good business sense because it would mean having an assured off-taker for Malampaya.

What this scenario means is that First Gen’s gas business will now be 100 percent owned by Razon and First Gen will lose its stake in Prime Hydro.

But the Lopez Group will end up with P59 billion, which Gabby Lopez’s camp can use to strengthen First Gen’s remaining businesses. 

Partnership

After all, First Gen isn’t just about the gas business.

There’s still geothermal through Energy Development Corp., as well as hydro, wind and solar.

And because nobody in the Gabby-led faction seems capable of running a power company the way Piki does, they can grow these remaining assets by taking in a strategic partner.

They could initially tap KKR, already a shareholder, or another strategic investor, perhaps a local power player in the country.

As for Piki, Management Man of the Year 2000, his track record speaks for itself.

He can opt to be bought out by his cousins and just join Razon in running First Gen’s gas business and Prime Hydro.

I’ve thought about these scenarios while considering possible endgames in this ongoing Lopez war.

I think this option is worth considering than staying in a prolonged conflict among the cousins, which is slowly diminishing the value of the Lopez companies’ shares.

But first, the Gabby-led faction must set aside their emotions and stop demonizing the “poison pills.” 

It’s really not that bad if it would mean a win-win solution for the feuding cousins.

Third ‘poison pill’

Just as I was about to finish this piece, the Gabby-led majority issued another statement, decrying what they called a third poison pill.

They said that EDC, First Balfour and First Gen would be in default if Piki is removed from First Gen.

“He (Piki) has in effect threatened to torch the very house that sheltered him all these years,” they said. The default provision is contained in a P25-billion standby letter of credit First Philippine Holdings got from Sy-led BDO.

Again, it’s a highly emotional statement. 

And again, I wonder – is it really poisonous? Or could all these “poison pills” actually be an antidote to their woes?

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