Brookfield Renewable Partners (BEP -1.07%), a subsidiary of asset management company Brookfield Asset Management (BN 0.34%), has finally struck a deal to acquire TerraForm Power (TERP), or the roughly 38% stake that it and its affiliates don't already own in the company. The combined entity will be one of the world's largest renewable energy companies.
The acquisition was already in the works, with Brookfield first proposing to acquire 100% ownership in TerraForm in January in an all-stock deal. The latest deal has some changed terms and is expected to close in the third quarter.
Brookfield will acquire each share in TerraForm for a consideration equivalent to 0.381 shares (also called units) of Brookfield, a hike from the 0.36 that was proposed earlier.
Also in January, Brookfield proposed to offer shares in Brookfield Renewable Corporation (BEPC) as consideration to TerraForm shareholders instead of direct units in its own company. BEPC is a new Canadian entity that'll be publicly listed on both the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE).
Now, TerraForm shareholders can opt for either BEP units or BEPC shares, which means they can choose to invest in Brookfield Renewable either directly or indirectly through BEPC. The latter gives shareholders an option to invest in stocks of a taxable corporate entity, shares of which can also be held in a retirement account. BEP is structured similar to a master limited partnership, units of which can't be held in a retirement account.
How big will the combined company be?
This deal is, undeniably, financially more lucrative for TerraForm shareholders compared to the earlier proposal as they'll now become part-owners in one of the world's largest publicly traded pure-play renewable energy companies.
Brookfield Renewable currently owns roughly 19,000 megawatts (MW) of installed capacity, primarily in hydroelectric power, and has another 13,000 MW of development projects in the pipeline. TerraForm, meanwhile, has 4,200 MW of installed capacity in solar and wind, primarily in the U.S. and Europe. TerraForm's acquisition, therefore, will help Brookfield diversify beyond hydropower into two popular and high potential sources of renewable energy -- wind and solar. The combined company will own assets worth nearly $50 billion.
Meanwhile, TerraForm just announced its 2019 numbers, reporting 14% growth in power generation. Among its biggest deals in 2019 was the $720 million acquisition of Canada-based AltaGas Ltd.'s distributed generation assets. Brookfield Renewable is a solidly run renewable energy company, and this deal should be accretive to TerraForm investors.