Shares of yieldco TerraForm Global Inc (NASDAQ: GLBL) jumped 11.4% in January, according to data provided by S&P Global Market Intelligence, as the company appeared to move closer to a potential buyout. Given the company's uncertain future since its sponsor SunEdison's bankruptcy, a buyout may be the best hope investors have to unlock value in the stock.
The big news was that on January 23 management announced it had entered an exclusivity agreement with Brookfield Asset Management to discuss a buyout. Brookfield had proposed buying all of TerraForm Global for up to $4.35 per share, or buying 50.1% of the company and replacing SunEdison as the sponsor for up to $4.25 per share. Given the fact that shares closed Monday at $4.40 per share, investors are speculating there's room to increase that offer in the future.
What's holding back a deal right now is the players involved. SunEdison's debtors are really the ones in control of TerraForm Global, and they need a high enough offer to justify selling, otherwise they'll reorganize what they're owed around the TerraForm yieldco assets. Brookfield won't pay a price too high because they need to be compensated for taking on the risk associated with TerraForm Global. And with other yieldcos in the market, the return they're looking for may go into the double digits. Shareholders are stuck between the two sides of this negotiation.
The pop in January was nice, but the market is currently pricing in an even higher price than Brookfield has put on the table, which is concerning. The buyout negotiations may fall through altogether, and Brookfield may just stick with its current offer price. I wouldn't be very bullish on shares today, and I think the recent bounce is a nice time to take some money off the table. There's no reason to think anyone will pay a premium for TerraForm Global, meaning the downside risk is bigger than the stock's potential today.