Despite its problems, TerraForm Global Inc (NASDAQ: GLBL) is one of the biggest yieldcos on the market today, and Trina Solar Limited (NYSE: TSL) is one of the most successful solar manufacturers in the world. And both companies are now eyeing potential buyouts.
Each company could be appealing for investors, either because of the possibility of a buyout premium or because of the value of the underlying company itself. But which is the better bet?
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TerraForm Global's new potential buyout
Yieldcos are supposed to be relatively safe investments, with contracted revenue extending a decade or more into the future. But TerraForm Global has been anything but safe. The company's parent, SunEdison, went bankrupt last year, and TerraForm Global was left without the ability to file quarterly statements, and eventually suspended its dividend.
The problem is that SunEdison is still in control of the company, both as a shareholder and at the board of directors level. That leaves shareholders with an uncertain future, while SunEdison's creditors are now trying to find ways to monetize the TerraForm Global assets to cash out.
The recent news is that Brookfield Asset Management (BN -0.69%) has signed an exclusive agreement to negotiate a buyout of TerraForm Global. So far, they've indicated a willingness to pay $4.35 per share for the entire company or $4.25 per share for a 50.1% stake and the chance to replace SunEdison as the company's sponsor.
A buyout would be a good thing for TerraForm Global's operations, but I also wouldn't expect the shrewd Brookfield Asset Management to be willing to pay a premium for the company. And with shares trading above the $4.35 level, there may not be much upside left.
Is Trina Solar's buyout in doubt?
While TerraForm Global works on a potential buyout, Trina Solar has one ready to go. Or that's what the public story is.
Trina Solar's management is leading a buyout that's supposed to take the company private for $11.60 per share. The shareholder vote has taken place (and it passed), but investors still don't think the deal is going to go through. Shares closed Monday at $9.84, meaning there's 17.9% upside to the share price if the buyout goes through as planned.
The worry is that a rapidly deteriorating solar market will make it impossible to finance the buyout transaction. Solar panel prices fell by about 1/3 in 2016, and it's unlikely Trina Solar will make a profit in the final quarter of the year, with losses probable in 2017, making financing difficult. There's no official word from Trina Solar that the deal will fall through, but the market doesn't have much confidence.
Assuming Trina Solar isn't bought out, the company is in an interesting position. It's the second largest solar manufacturer in the world, with module capacity of about 6.0 GW, but it also has $2.0 billion in debt on the balance sheet. If 2017 is indeed a year when financial losses hit the income statement, the company will be in a tough position.
With that said, Trina Solar is in a great position to be a solar leader long-term. It has the manufacturing capacity to take a large share of the market, and solar demand is expected to grow dramatically over the next decade. If the company isn't taken private, the future could be bright.
The best stock to buy today
Trina Solar provides investors with a lot more upside potential than TerraForm Global even if both companies are bought out. But if a buyout doesn't occur, Trina Solar is still a better company long-term because of its manufacturing base and experience as a project developer. If TerraForm Global isn't bought out, there's still risk the company won't survive at all.
