The saga of TerraForm Power Inc (NASDAQ:TERP) and TerraForm Global Inc (NASDAQ: GLBL) may finally be coming to a close if SunEdison and its debt holders can come to an agreement to sell the companies. Brookfield Asset Management has emerged as the most interested buyer and has signed an agreement to negotiate exclusively on a deal.
But the prospect of a buyout offer may not bring the kind of payday many investors are expecting. Here's what we know about the current offers and where the buyout process goes from here.
Brookfield's underwhelming offer
TerraForm Power's agreement to exclusively negotiate with Brookfield Asset Management extends to the end of the day on Feb. 21, 2017. But before any deal is reached, it needs to separate itself from SunEdison, its bankrupt sponsor. TerraForm Power and SunEdison have entered into a memorandum of understanding that includes releasing all claims between the two companies and paying SunEdison 36.9% of any buyout price. This includes the cancelation of incentive distribution rights that were once seen as one of the most valuable assets SunEdison had.
As far as price goes, Brookfield has already offered $11.50 per share for TerraForm Power. And it would increase that to $12 per share if it also gets at least 50% of TerraForm Global. But there's no assurance the price will increase from there. Given shares closed Tuesday at $11.76 there's not much upside from those offers and there may even be downside risk. This may eventually be a buyout at a price below where shares trade on the open market.
The deal TerraForm Global is considering
TerraForm Global also has an exclusive agreement with Brookfield to negotiate a buyout, although it goes through March 6, 2017. Like its sister yieldco, an initial offer was made by Brookfield. It offered to buy 50.1% of the yieldco for $4.25 per share or 100% of shares for $4.35 per share. Both prices are below the $4.50 closing price on Tuesday.
It seems as though TerraForm Global is a sweetener in any offer to buy the yieldcos. Given the challenges the international yieldco faces and the financing package Brookfield would have to put together to keep the company afloat, it won't overpay to get TerraForm Global alone, but it may be interested if it makes a deal for TerraForm Power more likely.
What can investors expect from here?
If you're expecting a huge pop in either TerraForm yieldco from here you may wind up disappointed. Brookfield is by far the most aggressive company in pursuing a deal, but it hasn't been willing to offer prices exceeding the offers I outlined above. What's worse, there's an equal likelihood the deal falls apart or the agreed upon price is below where shares currently trade. There's no reason to currently bet on the buyout of these companies.