Is Brookfield Renewable Partners' Buyout of TerraForm Good News for Investors?
Brookfield Renewable Partners (NYSE: BEP) started the year by making an offer for an all-stock buyout of TerraForm Power (NASDAQ: TERP). The companies have been intertwined for a few years, and the proposed deal would give Brookfield all the shares it does not already own. As investors look at what this deal could mean for them, it is important to look back at what got the companies to this point.
Investors should note that TerraForm Power is a yieldco, a structure that was designed to maximize growth for renewables developers by separating contracted power generation assets into stand-alone companies. Yieldcos were designed to generate returns for investors and therefore make the sector more attractive and foster growth. The structure was popular as TerraForm went public in 2014 but high growth aspirations and others missteps showed that in many cases the parent company's interests were not in line with those of shareholders, and declines in share price followed less than two years later. It is also important to note that TerraForm Power was the yieldco of SunEdison, a renewables developer that filed for bankruptcy in 2016. The company faced shareholder lawsuits, some of which alleged mismanagement of funds moving between SunEdison and TerraForm and overpaying for assets.
TerraForm has done well under Brookfield's leadership. As recently as 2017 the company was on the verge of being pulled into bankruptcy by its parent company and was threatened with the delisting of its shares by NASDAQ because it couldn't file financial reports on time. Soon after Brookfield bought its 51% stake in December 2017, the company's corporate credit rating was upgraded and it started paying down debt and pursuing new acquisitions. The latest proposal gave the company's share price a boost since Brookfield offered an 11% premium to the Jan. 10 closing price. TerraForm's board has formed a special committee to evaluate Brookfield's proposal.
Source Fool.com
