The Lopez Group’s First Philippine Holdings Corp. (FPH) has rejected a proposal from Kohlberg Kravis Roberts & Co. L.P. (KKR) to acquire a portion of its stake in First Gen Corp. because the price offered is not good enough.

“After careful deliberation and consideration, FPH has determined that KKR’s proposal does not represent First Gen’s true value,” FPH said in a disclosure to the Philippine Stock Exchange (PSE) on Monday, Aug. 17.

FPH said it has sent a letter advising KKR that it has decided not to pursue KKR’s non-binding proposal to acquire a portion of FPH’s shareholding in First Gen and launch a voluntary tender offer for First Gen’s public float at ₱35 per share.

KKR proposed to acquire an additional 20-percent stake in First Gen by initially acquiring an additional 8.43-percent stake in First Gen from parent firm FPH at ₱35 per share for a total amount of ₱10.6 billion.

The transaction was to be followed by a tender offer at the same price of ₱35 a share for First Gen’s remaining 11.67-percent public float, with the intention of voluntarily delisting First Gen from the PSE.

“Given the significant increase in First Gen’s share price (up 44 percent) since the news came out of KKR’s offer, the decision by FPH to reject the proposal could result [in] a significant correction in First Gen’s share price in the near term,” said COL Financial Group Inc. senior research manager George Ching.

He added, “It remains to be seen whether this decision by FPH could pave way for a better offer by KKR or another potential bidder which FPH would consider.”

Given First Gen’s limited float of 11.67 percent, Ching said it is very likely that First Gen will be voluntarily delisted in the exercise if more than 1.7 percent of the minority shares accept KKR’s tender offer.

“In terms of the ₱35-per-share tender offer price, we believe this is close to First Gen’s fair valuation at this point (COL fair value estimate is ₱34.70 per share). Furthermore, the offer is a significant 64-percent premium to First Gen’s market price,” Ching said last Aug. 12, when KKR had just made the proposal.

Chinabank Capital Corp. managing director Juan Paolo Colet said, “By turning down the offer, First Gen keeps the door open for a potentially more attractive proposal, either from KKR or a competing bidder.”

“The downside risk for public shareholders is that if no higher offer emerges, the stock price could surrender much of its recent speculation-driven rally. In the absence of a new bid, First Gen should clearly communicate how it plans to unlock shareholder value,” Colet added.