(Bloomberg) — A global clean-energy giant that nearly doubled its shares last year through an aggressive hydropower program is angling to boost its portfolio of wind and solar assets.
Brookfield Renewable Partners LP said Monday it’s bidding to buy the shares of TerraForm Power Inc. that it doesn’t already own in a deal that values the company at around $3.9 billion. An acquisition would add more than 4,000 megawatts of wind and solar capacity globally to Brookfield’s existing 18,000-megawatt portfolio.
“It’s really a function of ‘do we feel like we can run a bigger, stronger company by simplifying the structure?’ Yes, absolutely,” said Sachin Shah, Brookfield Renewable’s chief executive officer, in an interview Monday.
Brookfield Asset Management Inc. already controls 61.5% of TerraForm’s Class A shares. The non-binding, all-share proposal values the company at $17.31 a share, representing an 11% premium to the Jan. 10 closing price, according to a statement Monday.
TerraForm’s shares rose 10.4% to $17.23 at 11:49 a.m. in New York trading while Brookfield fell 3.3% to $46.47.
When Brookfield Asset Management took control of TerraForm in 2017, the Canadian alternative-asset giant had just a half-megawatt of solar power. In making its bid to buy out TerraForm, it’s targeting more than 1,700 megawatts of added solar power. An acquisition would also boost Brookfield’s exposure to wind in North America and Western Europe.
Mark Jarvi, an analyst at CIBC, said in a note that he expects Brookfield Renewable shares may react positively to a deal, though there may not be much upside given how much shares have gained over the past 12 months.
Brookfield Renewable has been advancing a strategy of recycling capital by selling mature renewable power assets and acquiring new ones.
During the third quarter of last year, it agreed to acquire a 200-megawatt wind farm in China for $100 million with its partners. In July, it agreed to acquire a 50% interest in X-Elio, a global solar developer.
Brookfield’s unsolicited proposal comes amid two overlapping trends: mounting institutional appetite for companies that own operating clean-power plants and wavering interest for such entities from Wall Street. These winds have prompted at least a half-dozen sales of the publicly traded companies known as yieldcos in the past few years. It’s also meant that there are few yieldcos left on Wall Street.
“The power sector by its nature is capital-intensive,” Shah said by telephone. “They require a company that’s well-capitalized. Many of the yieldcos didn’t have that. Brookfield brings that to bear.”
Yieldcos became major growth engines for U.S. renewable power when they emerged more than six years ago. They allowed developers to sell solar farms to publicly-traded yieldcos they controlled and reinvest the cash to build more. Then SunEdison Inc., TerraForm’s founder, collapsed after relying on yieldcos to finance a dizzying buying binge. Questions arose about its governance, and investors began to doubt whether the yieldcos could continue to pay rising dividends.
Institutional buyers, meanwhile, see significant value in the solar and wind farms that these companies own. Such assets boast steady returns and long-term contracts with utilities.
Brookfield Renewable is “a best in class developer of long-dated renewable power and a savvy purchaser of distressed assets,” said Andrew Kuske, an analyst with Credit Suisse Group AG.
–With assistance from Natalia Kniazhevich and Scott Deveau.
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