Two high performing renewable energy stocks are coming together in a potential mega-merger that could form a major powerhouse in the green energy space.
TerraForm Power (NASDAQ: TERP) is considering a potential merger with Pattern Energy (NASDAQ: PEGI). While the company made it clear that an arrangement hasn’t been reached yet and that the deal might not even go through, it’s worthy enough to make news in the financial community as investors could expect significant stock swings should the deal be finalized.
The speculated merger is particularly important because the combined companies would be able to significantly reduce their operating costs, profitability, and dividend growth through selling off redundant assets as well as merging together their compatible portfolio of assets.
TerraForm Power’s previous owners went bankrupt back in late 2017 before being purchased by Brookfield Renewable Partners (NYSE: BEP). Since then, TerraForm has flourished as a subsidiary, seeing a quick turnaround over the past couple of years. The company is now on track to grow at a 5 to 8 percent annual rate well into 2022.
Pattern Energy has a somewhat similar story, although wasn’t in quite the rough shape that TerraForm was in, is still a bit weak as a result of its aggressive growth in the years following it’s 2013 IPO.
As such, the stock fits the profile of what Brookfield/TerraForm is looking for in a potential acquisition target, especially since Pattern Energy investors didn’t provide the company with enough capital needed to continue its strategy of aggressive growth through buying other assets.
The company eventually had to stop increasing its dividend in 2017 because of this. However, Pattern ended up seeing a turnaround as well and is now working on a two-year plan that would increase its cash flow per share by a 10 percent compound annual rate.
However, just because Brookfield approached Pattern Energy doesn’t mean that the deal would necessarily go through, and Pattern might choose to opt-out and instead focus on its own turnaround plans by itself.
What is clear, however, is that Brookfield’s history of helping struggling energy company’s turnaround is an appealing prospect to investors, and shares of these stocks would likely go up on the event that a merger does go through. Until then, investors should keep their eyes open for potential news of a merger in the future and be prepared to capture some of those gains likely to happen on such news.
Pattern Energy Company Profile
Pattern Energy Group Inc is an independent power company that owns and operates power projects. The company owns a portfolio of wind power projects located in the U.S., Canada, and Chile. Pattern Energy Group’s revenue is primarily generated from the sale of electricity to local utilities under long-term, fixed price agreements. Most of the company’s energy generating facilities are located in the U.S. These American sites are also responsible for the vast majority of its revenue. – Warrior Trading News
TerraForm Power Company Profile
TerraForm Power Inc Class A owns and operates clean power generation assets. The portfolio of facilities controlled by the company includes wind and solar power producing facilities located in the U.S., Canada, the United Kingdom, and Chile. The majority of the energy produced by TerraForm Power comes from its solar sites. – Warrior Trading News