Independent directors of First Gen Corporation have reaffirmed their support for the company's recent P75-billion hydropower investments amid escalating criticism from the majority bloc of the Lopez family.

In a joint statement issued Tuesday, First Gen independent directors Alicia Rita Morales, Edgar O. Chua, and Manuel Ayala said the Federico “Piki” Lopez-led energy company’s investments in the 600-megawatt (MW) Wawa pumped-storage hydroelectric (PSH) project in Rizal and the 1,400-MW Pakil PSH project in Laguna were approved after “exercising objective and independent judgment.”

Thorough review process

“At the end of a thorough review process, we concluded that First Gen's investment in both PSH projects will benefit First Gen and its stockholders,” they said.

“We reviewed the projected earnings from the projects and are convinced that annual earnings from First Gen's 33-percent stake in both PSH projects, estimated at P16 billion upon completion, have a solid basis,” the First Gen directors underscored.

Last week, the Lopez majority faction described the transactions as a “horrible” deal, alleging that First Gen agreed to pay a P50-billion transaction premium and provide P25 billion in construction equity as part of a P75-billion acquisition of a 40-percent stake in a hydropower business owned by another major local energy company.

The faction also alleged that the premium was not disclosed to the stock exchange and claimed that Piki Lopez later reduced First Gen’s stake from 40 percent to 33 percent, lowering its investment from P75 billion to P61.875 billion to the detriment of the company.

First Gen responded by saying the alleged P50-billion transaction premium was not “free” or “superfluous” money, but compensation for years of investments and development work undertaken by its partner to bring the projects to a de-risked stage.

Common in large M&A transactions

On Tuesday, the independent directors reiterated that such premiums are common in large merger-and-acquisition (M&A) transactions, noting that the deal partner had already made substantial investments and completed significant development work before First Gen's entry into the projects.

They added that the reduction of First Gen’s stake to 33 percent “represents an equitable and justifiable consideration” for the years and substantial resources invested by the partner in completing development activities and mitigating key project risks.

“Further, the Change of Management Control provision requested by [our deal partner] to be included in the relevant project agreements is a relatively standard clause in contracts for energy infrastructure involving large investments. This was a reasonable stipulation to ensure that the projects are backed by the technical expertise and operational track record necessary for successful implementation,” the directors said.

The PSH transactions have come under sustained criticism from the Lopez family majority bloc, which controls about 71 percent of the shares of Lopez Inc. (LI), the family's holding company. The group has repeatedly questioned Piki Lopez’s leadership, citing a “loss of trust and confidence.”

Although the majority bloc earlier withdrew its motion to remove Piki Lopez as president of LI, tensions have since resurfaced.