What happened

Shares of TerraForm Power (NASDAQ:TERP) had rallied more than 10% by 10 a.m. EST on Monday. Powering the renewable energy company's shares was a merger proposal from Brookfield Renewable Partners (NYSE:BEP)

So what

Brookfield Renewable has offered to acquire all the outstanding shares of TerraForm Power that it doesn't already own in an all-stock deal valued at $17.31 per share, which is an 11% premium from its closing price last Friday. The company and its affiliates already own 62% of TerraForm's outstanding shares. It initially acquired that stake when its parent, Brookfield Asset Management (NYSE:BAM), took control of TerraForm in late 2017. And it has since increased its position by assisting TerraForm in making two needle-moving acquisitions. 

A solar energy facility at sunset.

Image source: Getty Images.

Brookfield Renewable, which will use its recently proposed conversion into Brookfield Renewable Corporation to complete the merger, would see an immediate boost in its per-share results by acquiring the rest of TerraForm. The transaction would also further expand its presence in North America and Western Europe, bolster its growth profile, and help launch Brookfield Renewable Corporation.

TerraForm investors, meanwhile, will get an immediate value boost. On top of that, they'd become part of a larger-scale renewable energy company with a much stronger financial profile. Furthermore, it would diversify their renewable energy exposure by adding hydroelectric and energy storage as well as operations in South America and Asia. 

Now what

TerraForm Power has yet to formally agree to the proposed merger. But it seems likely that the two companies will find an acceptable arrangement since Brookfield and its affiliates already own a majority stake in TerraForm. On top of that, the combination makes lots of strategic and financial sense because it would create an even larger-scale renewable energy company.

As such, existing TerraForm investors should consider holding their shares since the stock would automatically convert into that of Brookfield's new corporation.