When it emerged that Brookfield Renewable Energy Partners ("Brookfield", TSX:BRP.UN, OTC: BRPFF) had acquired approximately one sixth of Western Wind Energy's (TSXV:WND, OTC:WNDEF) stock last Thursday from Western Wind's largest institutional shareholder, Goodman & Company, investors cheered.
The transaction was seen as a signal that Brookfield intends to bid at least C$2.25 for Western Wind in its upcoming sale, and so the company’s stock has been trading for slightly more than C$2.25 since the announcement.
Despite this, the Brookfield/Goodman transaction may not prove to be a good deal for Western Wind’s other shareholders. Goodman had not said how it intended to vote in the upcoming proxy battle between Western Wind’s management and 4.78% owner Savitr Capital. The main issue in this proxy battle is which team is best suited to manage the process of selling the company.
Because the purchase comes with a promise from Brookfield to compensate Goodman if Western Wind is sold for more than C$2.25 in the next year, the transaction only makes sense if Brookfield intends to use its newly acquired votes to influence the vote in its favor. As a likely bidder in the sale, Brookfield’s incentive is to vote for the management team which it believes will accept the lowest offer for Western Wind. Savitr has stated that Western Wind management made a mistake rejecting Algonquin Power and Utilities Corp.’s (TSX:AQN, OTC:AQUNF) 2011 offer of C$2.50 a share, so it’s clear that Savitr is willing to accept less for the company than management.
Other shareholders will want to sell the company for as much as possible. They should vote for the team they think is best able to interest the broadest range of possible buyers in the company, and best able to advance its Yabucoa solar project and increase the company’s value in the meantime. I personally think current management has the best team for these two jobs, and will be voting my yellow proxy in favor of management’s nominees on September 25th.
While Brookfield’s stock purchase has been good news for Western Wind shareholders in the short term, if Brookfield casts the decisive vote in the proxy battle, it may well mean that we will end up with less for our shares that we would have gotten otherwise.
Brookfield must think so, or they would not have bothered striking the deal with Goodman.
Disclosure: Long WND, BRP-UN, AQN.
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