Shares of TerraForm Power (NASDAQ:TERP) leaped 17.5% in January, according to data provided by S&P Global Market Intelligence. Powering the wind and solar energy company's surge was a buyout proposal from Brookfield Renewable Partners (NYSE:BEP).
Brookfield Renewable Partners offered to acquire all of the outstanding shares of TerraForm Power that it doesn't already own in an all-stock deal valuing the company at $17.31 per share. That price was an 11% premium to TerraForm's closing price before it received the offer. Under the terms of the proposed transaction, Brookfield would exchange 0.36 shares of a newly formed corporation for each of TerraForm's shares it doesn't currently control.
The deal would give Brookfield full control over TerraForm (the company and its affiliates already hold a roughly 62% stake) while enhancing its cash flow per share and further expanding its presence in North America and Western Europe. Meanwhile, the transaction would provide immediate value to TerraForm investors while diversifying its operations both geographically and technologically.
TerraForm is reviewing the offer to determine whether it's in the best interests of investors. As such, the company could opt to accept the deal in its current form, try to negotiate a better price with Brookfield or a third party, or remain a stand-alone renewable energy company.
Of those options, it seems most likely that TerraForm will accept a buyout transaction with Brookfield, given that the company already controls a majority interest. What's not clear is if it will get a higher bid. Because of that uncertain upside, it doesn't make sense to buy TerraForm on the hope that Brookfield will boost its offer, since that might not happen.