Believes Water Island's
Lawsuit is Frivolous, Entirely without Merit and is Being Done as a
PR Stunt
Board Continues to Urge Stockholders to Vote "FOR" the
Transaction with Canada Pension Plan Investment
Board
SAN FRANCISCO, Feb. 26, 2020 /CNW/ -- Pattern Energy Group Inc.
(Nasdaq and TSX: PEGI) ("Pattern Energy" or the "Company") today
set the record straight regarding Water Island Capital, LLC's
("Water Island") false assertions
and mischaracterizations of Pattern Energy's transaction with
Canada Pension Plan Investment Board ("CPP Investments").
The Company issued the following statement:
We firmly believe that the CPP Investments transaction (the
"Transaction"), which provides significant, immediate and certain
value, represents the best path forward for Pattern Energy
stockholders.
In addition, we believe the lawsuit brought by Water Island is frivolous, entirely without
merit and is being done as a PR stunt.
The truth is that:
- The compelling Transaction is the result of a robust process
led by independent directors on the Special Committee of the
Pattern Energy Board of Directors (the "Board").
- Pattern Energy has faced significant headwinds that led to it
consistently trading at a discount to its peers over the last five
years.
- The recent stock movement of the Company's peers is largely the
result of event-driven situations at those companies that should
not be extrapolated to Pattern Energy.
- The fundamentals have not changed. Absent the premium
Transaction with CPP Investments, the Company will continue to face
headwinds, including having limited access to low-cost capital and
being the only U.S. YieldCo without a financial sponsor.
- Absent the Transaction, Pattern Energy stockholders would bear
the downside risk associated with the Company's standalone
plan.
In contrast, Water Island
supports its speculation about Pattern Energy's potential stock
price with flawed valuation analysis and mischaracterizations of
the process the Special Committee ran in leading to the
Transaction.
The Pattern Energy Board continues to recommend that
stockholders vote "FOR" the Transaction.
Water Island's
Speculation
|
The
Truth
|
Water Island
falsely posits that the Transaction does not create the most value
for Pattern Energy stockholders
|
√ The
Transaction represents a significant premium to multiple valuation
benchmarks and is priced at the high end of value
metrics:
• 14.8%
premium to Pattern Energy's unaffected price on August 9, 2019, the
last trading day prior to market rumors.
• 15.1% premium
to 30-day VWAP prior to unaffected date.
√ In contrast,
Pattern Energy has historically traded at a discount to
peers.
√ The
Transaction provides full and fair value for the development
pipeline and other aspects of management's plan.
√ Absent the
Transaction, Pattern Energy stockholders would bear the downside
risk associated with the Company's standalone plan.
|
Water Island
asserts that analysts believe the Transaction fails to provide
stockholders with full and fair value
|
√ Water Island
grossly mischaracterizes the Morgan Stanley report, which has a
base case price target of $26.75 (the Transaction price) and shows
a case of "no acquisition, no growth" price target of
$14.00.
• The Morgan
Stanley valuation reflects the equity market's total return
expectation. In particular, fundamental investors require a
combination of yield + growth of 9% on
average1.
• To get above
the $26.75 Transaction price, Pattern Energy would have to grow at
a rate well in excess of the current management plan, requiring
raising additional equity and possibly other actions, including
potentially cutting the dividend.
• Morgan Stanley
takes the same position as the Company: with no-to-little growth
the stock price will go down.
|
Water Island
believes that five years of fundamental headwinds causing Pattern
Energy to trade at a discount should be ignored in favor of one
month of trading by peers
|
√ Peer company
movement does not simply extrapolate to the Pattern Energy share
price.
√ Most
current peer market prices reflect unique event-driven situations
at those companies that are not relevant to Pattern
Energy.
√ Notably,
Pattern Energy's peers adopted alternative strategies. For example,
TerraForm, 8point3 and Clearway entered into transactions at a
discount to their trading share prices.
√ Contrary to
Water Island's misstatements, TransAlta Renewables' and Atlantica
Yield's share prices are disturbed as well, given that TransAlta
Renewables has benefited from merger speculation since March 2019,
and Atlantica Yield announced a strategic review in February
2019.
√ Despite the
sector seeing some of its highest trading levels in recent history,
the market remains volatile and the long-term sustainability of
current price levels is uncertain – a dynamic that has clearly
played out over the last several days.
√ This
volatility stands in stark contrast to the certainty of the
all-cash Transaction.
|
Water Island
says that there's no risk to the fundamental issues facing the
Company's standalone prospects
|
√ In
downplaying the risks associated with the Company's standalone
plan, Water Island is referring to dated commentary, singling out
quotes that are a year old to support its claims.
√ The fact is,
limited access to low-cost capital needed to grow dividends has
created headwinds for the standalone Company and risk for
management's plan stemming from the need to raise material amounts
of equity.
√ The Company's
historical trading discount to peers has and would continue to put
Pattern Energy at a relative disadvantage in pursuit of
acquisitions required to grow beyond management's plan.
√ The Company
has been able to avoid issuing common equity in the recent past by
issuing debt and preferred equity instead, but there are
limitations to its ability to continue to do so.
√ The Company
cannot solely rely on the debt markets, and "[o]ver the last
several years, the equity market has consistently valued PEGI
shares at levels that made equity issuances either completely
unpalatable or barely palatable." (Wells Fargo, February
2020)2
√ Given the
Company's limited access to capital needed to pursue the
acquisitions and development necessary to sustain its dividend
growth, Pattern Energy's standalone plan involves significant
risk.
|
Water Island
attacks the Special Committee as not independent and alleges that
management was conflicted and influenced the
process
|
√ The
Transaction is the result of a Special Committee-led process, and
delivers significant, immediate and certain value to all Pattern
Energy stockholders.
√ As part of
the process, the Special Committee of the Board, which comprises
solely independent directors, engaged with the 10 most logical
strategic and financial buyers, facilitated diligence with four
parties, and evaluated multiple expressions of interest from
multiple parties.
√ Once Pattern
Energy came to an agreement with CPP Investments, the Company
received a fairness opinion prior to signing, and post-signing,
conducted additional outreach to 16 parties during the "go-shop"
period, which did not result in any offer.
√ This process
reinforced that the Transaction is the best option for Pattern
Energy and its stockholders. That is why the Special Committee
unanimously recommended it to the Board.
|
Water Island
speculates that the Board dismissed a transaction that could have
created more value for stockholders
|
√ Company A
never provided a definitive proposal that the Special Committee
could act on.
√ The Special
Committee went as far as offering to pay Company A's go-forward
transaction-related expenses to entice it to advance discussions as
part of the process.
√ Despite the
Special Committee's extensive efforts, including repeated attempts
to engage, Company A chose not to finalize its proposal nor engage
during the "go-shop" period, despite outreach by the Special
Committee's advisors.
|
Water Island
posits that there is potentially undisclosed information and
conflicts surrounding management and Pattern Development, including
the valuation attributed to Pattern Development
|
√ Pattern
Energy's and its senior management team's interests in Pattern
Development have been fully disclosed.
√ The Special
Committee sought and believes it obtained the highest price
reasonably available for Pattern Energy.
√ The value
attributed to the Company's interest in Pattern Development by the
Special Committee's financial advisor is consistent with the value
received by Riverstone for its interest in Pattern
Development.
√ A transaction
involving Pattern Development was not a condition to a transaction
with Pattern Energy, including the Transaction or a potential
transaction with Company A.
√ Bottom-line,
the Transaction is the best option for Pattern Energy stockholders.
It represents a significant premium to multiple valuation
benchmarks and is priced at the high end of value
metrics.
|
Water Island
claims that management had conflicts of interest, given the
compensation they receive through the
Transaction
|
√ Certain
senior officers of Pattern Energy have economic interests in
Pattern Development. That fact has long been disclosed.
• The Pattern
Energy Board was fully aware of these interests and created the
Special Committee at the very outset of the process.
• The ownership
and compensation arrangements of these officers in Pattern
Development following the closing are disclosed in Pattern Energy's
proxy materials filed in connection with the
Transaction.
√ Contrary to
Water Islands' claim, neither the Pattern Energy nor Pattern
Development management teams had any power to block a transaction
by Pattern Energy.
√ As it relates
to the Transaction, the Special Committee, with its financial and
legal advisors – not management – led the negotiation with CPP
Investments for the terms of the merger agreement.
√ The Special
Committee prohibited management discussions with CPP Investments
and Riverstone about post-closing compensation until after terms of
the merger agreement had been agreed upon.
|
Water Island
alleges that management used consent rights as a poison pill to
steer the process toward CPP Investments
|
√ Pattern
Development did not block any bids for Pattern Energy pursuant to
any consent right.
√ The
transaction that was being discussed with Company A did not require
the consent of Pattern Development, Riverstone or Pattern Energy
management.
√ Management
had no consent rights over any transaction involving Pattern Energy
or Pattern Development.
|
Water Island
accuses Pattern Energy of removing language regarding the consent
rights from its 10-K
|
√ The Pattern
Development 2.0 Limited Partnership Agreement is publicly
disclosed.
√ The agreement
was filed with the SEC in June 2017 when it was entered into and it
has been an exhibit to each of the Company's Annual Reports on Form
10-K filed since that time.
√ As a result,
the terms of the arrangements with Pattern Development 2.0 are
publicly available to everyone.
|
Water Island
falsely contends that PSP is an insider and should not be permitted
to vote
|
√ Water Island
is trying to disenfranchise other stockholders who are fully
entitled to vote.
√ There are no
legal or other restrictions preventing PSP from voting on the
Transaction.
√ PSP's
contracts with the Company are purely commercial and arm's length
and were entered into more than two years ago.
|
Water Island
falsely asserts that Caledon is an insider and should not be
permitted to vote
|
√ Caledon is an
independent third party. Like any other stockholder of record, it
is entitled to vote on the Transaction.
√ The preferred
financing transaction with Caledon was pursued by Pattern Energy,
consistent with its standalone business plan (irrespective of any
potential strategic transaction) and was negotiated with Caledon at
arms'-length.
|
Water Island
attempts to undermine the fairness opinion valuation by alleging it
excluded some companies in the peer set and did not include all
projections
|
√ The peer set
included relevant companies that the Special Committee's
independent financial advisor deemed appropriate in its
professional judgment.
√ Specific
companies mentioned by Water Island in its letter were excluded
from the list of selected relevant companies for the following
reasons:
• Algonquin
Power & Utilities: Algonquin primarily operates regulated
utilities which are unlike Pattern Energy's wind and solar
facilities. Based on 2018 financials, approximately 88% of
operating income and approximately 64% of total assets are
attributable to the regulated utilities business.
•
Boralex: As of the third quarter of fiscal 2019,
approximately 48% of Boralex's assets are in France, where Pattern
Energy has no operations.
• Hannon
Armstrong Sustainable Infrastructure Capital: Hannon
Armstrong's business is different from Pattern Energy. Hannon
Armstrong focuses on behind the meter solutions (e.g. energy
efficiency, distributed solar and storage comprises 78% of its
pipeline as of December 31, 2019) rather than on utility-scale wind
or solar. It invests in minority investments in different parts of
the capital structure rather than pure equity investments. As of
December 31, 2019, Hannon Armstrong has 180 different investments
averaging $11 million each.
√ All key
projections attributable to Pattern Energy stockholders were
included in the valuation.
• The Special
Committee's financial advisor believes the full value is captured
in its valuation, as described in the proxy, via traditional
corporate finance analyses as described in the proxy.
• The Special
Committee's financial advisor did not create any projections. These
were all from Pattern Energy.
• All key
projections through 2023 are disclosed in the proxy.
• All key
projections were produced by Pattern Energy and all were accounted
for in the valuation conducted by the Special Committee's financial
advisor.
√ The
details and critical assumptions of the Special Committee's
financial advisor's valuation methodology are explained in the
proxy.
|
The Company continues to expect the Transaction to close by the
second quarter of 2020, subject to Pattern Energy stockholder
approval and other customary closing conditions. Pattern Energy has
received all regulatory approvals required to complete the
Transaction.
Evercore and Goldman Sachs & Co. LLC are acting as
independent financial advisors to Pattern Energy's Special
Committee of the Board, and Paul, Weiss, Rifkind, Wharton &
Garrison LLP is serving as independent legal counsel to the Special
Committee of the Board.
If you have any questions about the special meeting or need
assistance with voting procedures, you should contact:
Innisfree M&A Incorporated
501
Madison Avenue, 20th Floor
New
York, New York 10022
Stockholders
(Toll-Free): 1-888-750-5834
Banks and Brokers
(Collect): 1-212-750-5833
About Pattern Energy
Pattern Energy Group Inc. (Pattern Energy) is an independent
power company listed on the Nasdaq Global Select Market and Toronto
Stock Exchange. Pattern Energy has a portfolio of 28 renewable
energy projects with an operating capacity of 4.4 GW in the
United States, Canada and Japan that use
proven, best-in-class technology. For more information,
visit www.patternenergy.com.
Cautionary Statement Regarding Forward-Looking
Statements
Certain statements contained in this
communication constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and
"forward-looking information" within the meaning of Canadian
securities laws. Such statements include statements concerning
anticipated future events and expectations that are not historical
facts. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements.
Forward-looking statements are typically identified by words such
as "believe," "expect," "anticipate," "intend," "target,"
"estimate," "continue," "positions," "plan," "predict," "project,"
"forecast," "guidance," "goal," "objective," "prospects,"
"possible" or "potential," by future conditional verbs such as
"assume," "will," "would," "should," "could" or "may," or by
variations of such words or by similar expressions or the negative
thereof. Actual results may vary materially from those expressed or
implied by forward-looking statements based on a number of factors
related to the pending acquisition of the Company, including,
without limitation, (1) risks related to the consummation of the
Merger, including the risks that (a) the Merger may not be
consummated within the anticipated time period, or at all, (b) the
parties may fail to obtain shareholder approval of the Merger
Agreement, (c) the parties may fail to secure other applicable
regulatory approvals, including from the Federal Energy Regulatory
Commission, and (d) other conditions to the consummation of the
Merger under the Merger Agreement may not be satisfied; (2) the
effects that any termination of the Merger Agreement may have on
the Company or its business, including the risks that (a) the price
of the Company's common stock may decline significantly if the
Merger is not completed, (b) the Merger Agreement may be terminated
in circumstances requiring the Company to pay Parent a termination
fee, or (c) the circumstances of the termination, including the
possible imposition of a 12-month tail period during which the
termination fee could be payable upon certain subsequent
transactions, may have a chilling effect on alternatives to the
Merger; (3) the effects that the announcement or pendency of the
Merger may have on the Company and its business, including the
risks that as a result (a) the Company's business, operating
results or stock price may suffer, (b) the Company's current plans
and operations may be disrupted, (c) the Company's ability to
retain or recruit key employees may be adversely affected, (d) the
Company's business relationships (including with suppliers,
off-takers, and business partners) may be adversely affected, (e)
the Company is not able to access the debt or equity markets on
favorable terms, or at all, or (f) the Company's management's or
employees' attention may be diverted from other important matters;
(4) the effect of limitations that the Merger Agreement places on
the Company's ability to operate its business or engage in
alternative transactions; (5) the nature, cost and outcome of
pending and future litigation and other legal proceedings,
including any such proceedings related to the Merger and instituted
against the Company and others; (6) the risk that the Merger and
related transactions may involve unexpected costs, liabilities or
delays; (7) the Company's ability to continue paying a quarterly
dividend; and (8) other economic, business, competitive, legal,
regulatory, and/or tax factors under the heading "Risk Factors" in
Part I, Item 1A of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2018, as updated or supplemented by
subsequent reports that the Company has filed or files with the
U.S. Securities and Exchange Commission ("SEC") and Canadian
securities regulatory authorities. Potential investors,
stockholders and other readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date on which they are made. The Company does not assume any
obligation to publicly update any forward-looking statement after
it is made, whether as a result of new information, future events
or otherwise, except as required by law.
Additional Information and Where to Find It
This
press release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This press release may be deemed to be
solicitation material in respect of the Merger. In connection with
the proposed transaction, the Company has filed a definitive proxy
statement with the SEC and Canadian securities regulatory
authorities and mailed the definitive proxy statement and proxy
card to each stockholder entitled to vote at the special meeting
relating to the proposed Merger. STOCKHOLDERS OF THE COMPANY ARE
URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR
SUPPLEMENTS THERETO AND ANY DOCUMENTS INCORPORATED BY REFERENCE
THEREIN) AND OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE
PROPOSED TRANSACTION THAT THE COMPANY HAS FILED AND MAY FILE WITH
THE SEC AND CANADIAN SECURITIES REG`ULATORY AUTHORITIES WHEN THEY
BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT
THE PROPOSED TRANSACTION AND THE PARTIES TO THE PROPOSED
TRANSACTION. Stockholders and investors are able to obtain free
copies of the proxy statement and other relevant materials (when
they become available) and other documents filed by the Company at
the SEC's website at www.sec.gov and the website of the Canadian
securities regulatory authorities at www.sedar.com. Copies of the
proxy statement and the filings incorporated by reference therein
may also be obtained, without charge, by contacting the Company's
Investor Relations department at ir@patternenergy.com or (416)
526-1563.
Participants in Solicitation
The Company and its
directors, executive officers and certain employees, may be deemed,
under SEC rules and applicable rules in Canada, to be participants in the solicitation
of proxies in respect of the Merger. Information regarding the
Company's directors and executive officers is available in its
annual proxy statement and definitive proxy statement related to
the proposed transaction filed with the SEC and Canadian securities
regulatory authorities on April 23,
2019 and February 4, 2020,
respectively. Other information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, is also contained in
the definitive proxy statement and other relevant materials filed
with the SEC and Canadian securities regulatory authorities. These
documents can be obtained free of charge from the Company from the
sources indicated above.
SOURCE: Pattern Energy Group Inc.
Media Contact
Joele
Frank, Wilkinson Brimmer Katcher
Andy Brimmer / Ed Trissel / Aaron
Palash
212.355.4449
Investor Contact
Scott
Winter / Gabrielle Wolf
Innisfree M&A Incorporated
212.750.5833
1 Source: Bloomberg market data as of 21-Feb-2020
2 Permission to use neither sought nor
obtained
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SOURCE Pattern Energy Group Inc.