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Just when it seemed that SunEdison was moving toward selling its stake in yieldco TerraForm Power (TERP) and bringing some stability to the company, the board of directors in the yieldco have adopted a "poison pill" to stave off an unfriendly acquisition. Over the weekend, a policy was put in place to make it hard for any shareholder to acquire over 15% of TerraForm Power's A shares, which are the shares owned by the public.
With hedge funds circling both A shares and B shares SunEdison owns, the conclusion of the company's management and ownership structure could be prolonged. Or it could mean that an auction process for TerraForm Power is in the works. Either way, SunEdison wants to stay in control of the process instead of giving in to outside investors.
What a poison pill does
The poison pill rule put in place by TerraForm Power would give shareholders the right to dilute an acquiring shareholder that may acquire 15%, or more, of the company's shares. SunEdison and TerraForm Power's Board of Directors is afraid that someone, particularly hedge fund Brookfield Asset Management, will acquire such a large stake on the company that they could block any potential sale of SunEdison's stake in TerraForm Power.
This comes at a time when both SunEdison and TerraForm Power have said they're trying to find ways to increase value for all stockholders in looking for alternatives. Presumably, that means that SunEdison is shopping its stake in the yieldco while in bankruptcy, buy publicly we don't know exactly what's going on with that process.
What David Tepper was worried about all along
What's remarkable about the poison pill today is that when hedge fund manager David Tepper's Appaloosa Management started building its position in TerraForm Power last fall, it was in part because it thought the company's corporate governance was a mess. SunEdison had essentially taken over the boardroom and there was little independence left for public shareholders.
Now, with SunEdison in bankruptcy, it is still exerting control over TerraForm Power, this time in the form of a poison pill. Maybe Tepper was right all along that what's best for TerraForm Power is independence from SunEdison.
This saga is far from over
Poison pills aren't uncommon in public companies, and with SunEdison and TerraForm Power saying they're looking for ways to unlock value, there could be some sort of deal in the works. SunEdison says it's working to sell its B shares to another investor or find an alternative arrangement, and maybe an auction process is already in the works.
What would be bad is if the sale process draws out and debt holders push forward with their default request. The faster the ownership structure is figured out, the quicker the company can get back to normal operations.
Stay tuned for what wrinkle will be thrown in TerraForm Power's drama next because it seems like something changes with the company's future every day.
