Caught Between a Family Feud and a Hard Place: Why KKR Might Not Return With a Higher Bid for FGEN Shares

The investment firm bought into a Philippine power champion expecting a long-duration infrastructure play. Six years later, foreign-ownership constraints, governance uncertainty, heavy capital requirements and a stubbornly weak stock price have narrowed its exit routes.

MANILA— When KKR first bought into First Gen Corp. in 2020, the investment had the hallmarks of a patient infrastructure wager: scarce generating assets, growing electricity demand and a portfolio positioned around natural gas and renewable power. Six years later, the global investment firm’s roughly 19.9% economic interest has become something more complicated—a large minority position that is difficult to expand, difficult to sell and now difficult to take private. KKR’s attempted solution, a ₱35-a-share proposal that would have enlarged its stake and removed First Gen from the Philippine Stock Exchange, was rejected by controlling shareholder First Philippine Holdings Corp., or FPH, as failing to reflect First Gen’s “true value.” 

The rejection has prompted speculation that KKR will return with a sweeter offer. It might not.

For KKR, bidding higher would mean committing more capital to a company already caught at the intersection of Philippine foreign-ownership rules, a recently bruising Lopez-family governance fight and an investment program that will consume tens of billions of pesos before many projects produce cash. Meanwhile, First Gen’s share price—before takeover speculation lifted it—had drifted so far below KKR’s historical purchase prices that the stock market offered little evidence investors would soon reward the company’s long-term strategy. 

A costly minority position

KKR assembled its First Gen stake in two large steps. In 2020, its Valorous Asia Holdings vehicle acquired about 427 million First Gen shares at ₱22.50 apiece, for roughly ₱9.6 billion. In 2021, another KKR vehicle bought nearly 263 million shares at ₱33 each for about ₱8.68 billion, lifting KKR’s ownership to approximately 19.9%. Weighted together, the transactions imply an average acquisition cost of about ₱26.50 a share, excluding expenses, dividends and any smaller subsequent adjustments.

That price looks manageable compared with KKR’s proposed ₱35 bid. But it obscures two problems. First, an analyst estimated that KKR’s acquisition cost works out to roughly ₱32 to ₱33 a share after accounting for the peso’s depreciation. Second, First Gen closed at ₱16.12 on July 9, the day before KKR submitted its preliminary proposal—about 39% below the simple peso-denominated weighted cost and roughly half the currency-adjusted estimate. 

Such mark-to-market losses need not trouble a long-term infrastructure fund if the underlying assets are performing and an eventual exit is visible. In First Gen’s case, the exit is the hard part.

A sale through the open market would be cumbersome. The company has only a modest public float, and placing a block equivalent to nearly one-fifth of its shares could overwhelm normal trading demand. Selling to another strategic investor would require finding a buyer willing to accept the same minority position beneath FPH—and to navigate the same ownership, governance and liquidity constraints confronting KKR.

Foreign ownership narrows the doorway

First Gen’s corporate structure adds another layer of friction. Philippine foreign-investment restrictions aren’t a single blanket rule: they depend on the particular activities, assets and rights held by a company and its subsidiaries. Businesses involving Philippine land, natural resources or other constitutionally and statutorily restricted activities generally must preserve qualifying Filipino ownership, often creating a 40% ceiling for foreign equity in the restricted enterprise. First Gen regularly files foreign-ownership reports, suggesting nationality headroom is a live compliance issue rather than an academic footnote. 

That doesn’t mean KKR is necessarily prohibited from crossing a particular percentage of First Gen based solely on its power-generation business. The legal analysis would depend on the First Gen group’s specific permits, landholdings, renewable-resource interests and subsidiary structure. But the relevant point for KKR is practical: any substantial increase must be engineered around foreign-ownership headroom, rather than treated as an ordinary acquisition of an unrestricted industrial company.

The rejected proposal reflected that reality. KKR wanted to buy an additional 8.43% stake from FPH, enter into a shareholders’ agreement with the controlling shareholder and then purchase First Gen’s 11.67% public float. Although some disclosures and reports described KKR’s present interest as 19.9% and its potential post-transaction position at roughly 40%, the structure depended on carefully allocated ownership and governance rights rather than a straightforward transfer of control. FPH would have remained the controlling shareholder even if its economic interest fell below 50%. 

Foreign-ownership restrictions therefore function as both a legal boundary and a negotiating disadvantage. KKR can’t simply keep purchasing shares indefinitely. The closer it moves toward the relevant ceiling, the more important FPH’s cooperation becomes—and the more likely KKR is to end up with more money tied to First Gen without gaining unilateral control.

Buying the public float alone wouldn’t solve the problem. Even if every public shareholder tendered, KKR would remain a minority investor under the disclosed ownership framework. Such purchases could also breach the PSE’s minimum-public-ownership requirement, prompting a trading suspension rather than delivering the orderly voluntary delisting KKR sought. A voluntary delisting requires First Gen board action, specified independent-director support and shareholder approval; FPH’s controlling position gives it decisive influence over that process. 

A feud enters the valuation model

Then there is the Lopez family.

Earlier this year, a leadership and financial dispute inside Lopez Inc., the family’s apex holding company, spilled into court proceedings and the governance of listed affiliates. FPH postponed its annual stockholders’ meeting while legal questions involving Federico “Piki” Lopez and Lopez Inc. remained unresolved. Reports described an effort by a bloc associated with Eugenio “Gabby” Lopez III to remove his cousin from leadership, raising uncertainty about control, strategy and change-of-control provisions farther down the corporate chain.

The feud appeared to move toward a resolution when the family branch associated with Gabby Lopez sold its 25.68% interest in Lopez Inc. to a vehicle owned by San Miguel Corp. Chairman Ramon Ang. Piki Lopez called the transaction a step toward resolving issues affecting the family and its businesses. Yet for an outside investor, the episode exposed how decisions at First Gen can be shaped by disputes several corporate levels above it. 

KKR’s proposal was especially sensitive to those risks. It contemplated a shareholders’ agreement with FPH and reportedly assigned a substantially higher price—around ₱46 a share—to a transaction that produced a direct or indirect change of control. That implied KKR distinguished sharply between becoming a larger protected minority shareholder alongside the current controller and paying for actual control after a change higher in the Lopez ownership chain. 

For KKR, that distinction cuts two ways. A well-designed shareholders’ agreement could protect board representation, information rights and major investment decisions. But negotiating stronger minority protections after a public family-governance dispute is unlikely to be simple. FPH would have to agree not only on price, but also on reserved matters, future financing, dividend policy, asset sales and the treatment of future control changes.

The rejected bid wasn’t merely an argument over whether First Gen was worth ₱35 or ₱40. It was a negotiation over who would carry the financial burden of the company’s next investment cycle and who would control the strategic decisions.

Green power, heavy spending

First Gen’s business is attractive precisely because it is difficult and expensive to replicate. Its portfolio includes geothermal, hydro, wind, solar and low-carbon natural-gas assets. Those operations benefit from long asset lives and rising demand for reliable, cleaner power. They also require large, front-loaded investments, long construction periods, regulatory approvals and exposure to drilling, hydrological and execution risks. 

The company plans approximately ₱41.7 billion of capital expenditures in 2026, up from roughly ₱33.5 billion the previous year. Spending is directed toward pumped-storage hydro, geothermal drilling and rehabilitation, and solar and overseas geothermal development. Among its biggest commitments are interests in the 600-megawatt Wawa and 1,400-megawatt Ahunan pumped-storage projects, with completion targeted around 2029 to 2030. 

These are potentially valuable assets. Pumped storage can stabilize a grid containing more intermittent wind and solar generation, while geothermal provides round-the-clock renewable electricity. But they don’t offer a quick answer to KKR’s liquidity problem. They consume capital now and are expected to generate their full economic payoff years later. Geothermal drilling also carries resource risk: expenditure can precede certainty about productive steam reserves. 

First Gen’s first-half 2026 results illustrate the tension. Attributable recurring net income was about ₱8.7 billion, only slightly ahead of ₱8.6 billion a year earlier, despite a sharp increase in revenue. The company still has a substantial earnings base, but the relatively flat profit result sits alongside a capital budget equal to several years of current semiannual earnings. 

A higher bid would therefore do more than increase KKR’s purchase price. It could deepen KKR’s exposure just as First Gen enters a capital-intensive phase that may require retained earnings, additional debt or new equity. If KKR expects substantial dividends to recover its investment, large construction commitments compete with that objective. If it expects capital appreciation instead, it must wait for projects to be commissioned and for the Philippine market to give them credit.

The market’s stubborn discount

FPH’s rejection rested on the position that ₱35 didn’t represent First Gen’s true value. The public market had been saying something harsher.

Before news of the proposal emerged, First Gen traded at ₱16.12—less than half the takeover price. The disclosure triggered a sharp rally, but when FPH rejected KKR’s offer, the shares fell as much as 19% intraday to ₱24.90 as investors unwound takeover bets. The stock later closed at ₱27.20 on the day of the reported rejection, still below the proposed price and heavily influenced by expectations that another bid might emerge.

The disconnect can be read in opposite ways. For FPH, the depressed share price may prove that First Gen should be taken private only at a substantial premium reflecting its assets and long-term growth. For KKR, it may suggest the valuation discount is structural: limited liquidity, a modest public float, a complex group structure, heavy capital spending, and governance uncertainty may continue to weigh on the stock even if operating performance improves.

At ₱35, KKR was already offering more than double First Gen’s pre-proposal market price. FPH was implicitly asking it to pay an even larger premium to a market that had shown little willingness to value the company anywhere near that level. One brokerage estimate placed First Gen’s fair value at ₱34.70, essentially in line with KKR’s proposal rather than markedly above it. 

For a strategic buyer, paying above public-market value can be justified by control, synergies or the ability to restructure the company. KKR’s proposed acquisition offered none of those in full. FPH would have retained control. Foreign-ownership constraints would limit KKR’s room to expand. The shareholders’ agreement would require continuing cooperation between two powerful owners. And First Gen would still need billions of pesos for its project pipeline.

The option to do nothing

KKR can return with a higher bid. It can revise the governance package, reduce the proposed FPH block size, contribute capital to specific projects, or wait for another liquidity event. Market observers have noted that FPH’s language sounded more like a rejection of the valuation than a permanent refusal to transact.

But KKR also has the option to stop bidding against itself.

Its original ₱35 proposal offered FPH a substantial premium and an estimated ₱10.6 billion for the 8.43% block. Raising the price to ₱40 would increase the cost of that block and the contemplated public-float purchase by roughly ₱3.6 billion combined; at ₱45, the incremental commitment over the original proposal would be about ₱7.2 billion. The higher KKR bids, the harder it becomes to earn an infrastructure-fund return without aggressive dividend extraction, faster growth, or an eventual sale at an even higher valuation.

Walking away wouldn’t free KKR. Its existing stake would remain large, illiquid and exposed to the same governance and investment risks. Yet returning with more money may only convert a difficult minority investment into a larger difficult minority investment.

That is the trap embedded in First Gen’s ownership structure. FPH can decline KKR’s price because it controls the asset and believes in its future value. KKR can decline to increase its bid because it lacks the control needed to realize that value on its own. Public shareholders, meanwhile, are left with a stock whose best recent price catalyst was an offer its controlling shareholder didn’t accept.

For now, KKR’s First Gen position is neither a failed investment nor a completed take-private. It is something private-equity firms work hard to avoid: patient capital without a clear clock, a clear exit or a clear path to control.

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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.