The Philippine Stock Exchange Inc. (PSE) had asked Lopez-led First Gen Corp. to explain why it should not be penalized for its late disclosure of the so-called ‘poison pill’ or change of management control provisions in the company’s business deals with Prime Infrastructure.
PSE president Ramon Monzon told The STAR that the exchange has sent a clarificatory letter to First Gen when the change of management control provisions came out in the news.
‘After receiving and evaluating First Gen’s reply, PSE issued a show cause letter to the company asking for its written explanation on why it should not be penalized for incomplete and delayed disclosure violations,’ Monzon said.
The Lopez family majority in the board of Lopez Inc. last week called on both the PSE and the Securities and Exchange Commission (SEC) to investigate First Gen’s delayed disclosure of the poison pill provision.
SEC chairperson Francis Lim earlier told The STAR that it is for the PSE to determine if the alleged poison pills are ‘disclosable.’
The majority, which represents three branches of the Lopez clan, said the two poison pills, which shield Federico ‘Piki’ Lopez from ouster, were disclosed six months and two months late, respectively, ‘in clear violation of stock market rules meant to protect the investing public by giving them full, fair, accurate and timely information.’
The deals refer to Prime Infra’s purchase of 60 percent of the gas assets of First Gen for P50 billion in November last year, as well as First Gen’s purchase of 40 percent of Prime’s hydropower business for P75 billion, which was later reduced to 33 percent last February.
The Lopez majority said First Gen only admitted the existence of the poison pills when they exposed it and the PSE asked for a clarification.
‘These amounts are so significant that they are roughly equivalent to a third or so of the market capitalization of First Gen and would affect shareholder dividends and eventually share prices if triggered, as they should have been cleared with them (Lopez Inc. board), not just with the (First Gen) board that, Piki claimed, approved them,’ the Lopez majority said.
As a publicly listed company, First Gen earlier said it observes with fidelity the rights of all stockholders to equal access to material information by avoiding its premature and selective disclosure.
‘This holds true for the transactions with the Prime Infra Group, which all the members of First Gen’s board of directors – including chairman and CEO Federico R. Lopez and director Manuel L. Lopez – unanimously approved,’ the company said.
First Gen also explained previously that the change of management control provision serves as a significant protection mechanism for a business partner and is recognized as a relatively standard provision often in contracts for projects in industries such as energy and infrastructure, which involve huge investments.
The company said the provision is also known as the ‘key man clause’ because the success of projects under contracts with this provision depends heavily on the competence, relationships, or reputation of certain individuals.
The continued active involvement of these ‘key men’ is deemed essential by the party requesting the clause, it said.
First Gen noted that Prime Infra’s request to include the provisions demonstrates the level of trust and confidence the company has in Piki and his management team.