It appears the negotiations and drama are finally over for TerraForm Power Inc. (NASDAQ: TERP) and TerraForm Global Inc. (NASDAQ: GLBL), which will be acquired by Brookfield Asset Management Inc.(NYSE: BAM).
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TerraForm Global is being acquired in full for $5.10 per share, which amounts to a $787 million valuation for the company's equity and a $1.34 billion enterprise value. TerraForm Global will sell 51% of itself to Brookfield and the asset manager will take over the sponsor role from SunEdison. Here's a look at what you can expect from the deal.
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TerraForm Global's buyout
The buyout of TerraForm Global is fairly simple, with Brookfield agreeing to pay $5.10 per share in cash for the company. That's a 20% premium to where shares closed on Monday and is above the stock's 52-week range.
Investors will get to vote on the transaction but given the fact that Brookfield is paying a premium and TerraForm Global was running out of options, I don't see the acquisition getting held up by the vote.
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What TerraForm Power will look like in the future
The deal to buy 51% of TerraForm Power will be a little more complex. If approved, current shareholders will get a special dividend of $1.94 per share and either $9.52 in cash or one share of the post-transaction TerraForm Power. That's where the $11.46 buyout price comes from even though the stock is trading higher than that on the market post buyout announcement.
Complicating matters is that the deal is subject to proration, meaning investors may not get as many shares as they expect if they want to hold onto the stock. Brookfield needs to own 51% of the company post-transaction so if everyone chooses to get shares rather than the full cash buyout, the deal will be prorated to a level where more cash is paid out and Brookfield still owns 51% of the stock.
This was the best option TerraForm Power's management could find for the company given the weight SunEdison's ownership had on both shares and company borrowing. And it may allow Brookfield to generate more value long term.
What Brookfield gets out of the deal
One of the hopes for Brookfield is that it will be able to bring stability to both TerraForm Global and TerraForm Power in the long run. In the case of TerraForm Power, which will be the only public yieldco of the two after the acquisitions, the new sponsor may allow for lower borrowing rates on debt that funds operations. And even a small reduction in rates would help save costs from $3.86 billion in net debt.
This may even allow for a return of the dividend and potentially some growth acquisitions in the future. Brookfield agreed to provide a 3,500 MW right of first offer portfolio to TerraForm Power, which if acquired would provide growth.
We don't know exactly what TerraForm Power's operations will look like in the future but Brookfield's move to become the sponsor is a step in the right direction. Now, we'll need to see where the dividend ends up to know what kind of value the yieldco provides versus competing yieldcos on the market.
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