Shares of yieldco TerraForm Global Inc. (NASDAQ: GLBL) jumped as much as 11.3% on Monday after the company entered into an exclusive agreement to negotiate a buyout with Brookfield Asset Management. As of 1:40 p.m. EST, shares were still up 8.8% for the day.
Brookfield will have exclusive rights to negotiate with TerraForm Global about a potential buyout until the end of the day on March 6, 2017. We don't know if a deal will be reached, but Brookfield did give a revised bid letter that laid out potentially buying 100% of TerraForm Global for $4.35 per share or replacing SunEdison as sponsor and buying 50.1% of the company for $4.25 per share.
Those prices are the benchmark against which investors should work, and there's probably not a significant upside from there. TerraForm Global has been looking for a buyer for months and Brookfield is looking for value, not to pay a premium. Earlier this month, Brookfield offered to buy sister yieldco TerraForm Power for $11.50 per share, which was $2 below where the stock was trading before the offer. So, if $4.35 is what they've offered, that's probably close to what the company would pay for TerraForm Global.
Given the fact that TerraForm Global's shares now trade for more than the highest offer presented so far, I don't see a reason to jump into the stock. Brookfield isn't going to add a big premium and there's now risk the stock will fall even if a buyout is agreed to.
While a buyout might be the best thing for TerraForm Global's public shareholders long term, debtors to SunEdison may see more value in holding onto the company's assets and letting them generate cash they would then collect to recoup debts. That could block a deal, so while investors are excited about a potential buyout today, it's probably pushed the stock too high for now.