First Gen trading suspended after surprise tender offer for 3 to 5.7% of outstanding shares

The request to suspend trading for 1 day was made by First Gen's [FGEN 28.30] board after an article appeared in the Inquirer about a company called Philippines Clean Energy Holding Inc (CEH) that planned to conduct a public tender offer to acquire up to P5.8 billion worth of FGEN common stock. CEH intends to purchase between 107.9 million and 205 million FGEN common shares under the offer. FGEN made the request to give as much notice to as many FGEN stockholders as possible before trading began on this news.

FGEN said that it had not yet received a tender offer report on the potential transaction, while CEH said that it plans to submit the tender offer documents to the SEC and PSE soon, with the intention of beginning the tender offer on September 1st. CEH is a “special purpose vehicle” that has no known history of interest in the power generation sector. There’s no ownership information available at this time (the SEC’s website section on special purpose vehicles has not been updated since 2004). FGEN is a subsidiary of First Philippine Holdings [FPH 76.70 3.65%], the Lopez Family’s holdco. 

MB BOTTOM-LINE

A surprise to be sure, but a welcome one? Power generation is a hot industry and FGEN has had plenty of interest from international and world-class investors, so something like this isn’t maybe as crazy as it looks. A tender offer is a public bid to buy shares in a company, and the offer price is usually set at some level above the current market level as an incentive to stockholders to sell to the acquiring company. In this case, CEH wants to buy between 100 million and 200 million FGEN shares; FGEN’s average daily volume is somewhere in the 500,000 shares per day range, so it would take CEH the majority of the year to achieve its goal just buying shares on the open market through a broker like the rest of us.

There isn’t enough buying and selling activity (liquidity) for CEH to make those kinds of open market orders without either taking FOREVER to get the job done or seriously running up the price. So, in this way, CEH is likely willing to accept some per-share premium in exchange for the certainty that it gains for being able to set the premium in advance. Whether shareholders will happily sell FGEN shares to CEH through this tender offer probably depends on the sweetness of the premium that CEH is willing to pay. I expect that we’ll hear all the details today, especially if CEH hopes to start purchasing through its tender offer tomorrow.

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