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NEW YORK,–(BUSINESS WIRE)–Water Island Capital, LLC (“Water Island”), the administrator of advance funds beneficially owning 4,034,572 or 4.10% of Arrangement Activity Group, Inc. (NASDAQ: PEGI) (“Pattern Energy”) accustomed stock, issued an accessible letter today in acknowledgment to the February 19, 2020, columnist absolution issued by Arrangement Energy’s Lath of Directors, which fabricated a alternation of apocryphal and ambiguous claims about the alliance with the Canadian Pension Plan Advance Lath (the “CPPIB Merger”) and the action undertaken by the Arrangement Activity Lath in affiliation with the transaction.

The abounding argument of the letter follows below:

February 24, 2020

Dear Adolescent Arrangement Activity Accumulation Shareholders,

On February 19, 2020, Arrangement Activity Group’s (“Pattern Energy” or the “Company”) Lath of Admiral (the “Board”) issued a columnist absolution with a alternation of ambiguous claims that we access needs to be addressed.

Ambiguous Affirmation 1: The Canadian Pension Plan Advance Lath transaction monetizes Arrangement Energy’s advance prospects, including acumen the bulk of Arrangement Development 2.0, at an adorable value.

In our above-mentioned letter1 to Arrangement Activity shareholders, we laid out our acceptance that the alliance application offered by Canadian Pension Plan Advance Lath (“CPPIB”) is woefully inadequate. We angle by that analysis. Following our beat to Arrangement Activity shareholders, we access heard from abounding adolescent stakeholders who are admiring of our position and in acceding with our appearance that this transaction fails to accommodate shareholders with a fair bulk for their shares. Several aboveboard Wall Street analysts concur:

RBC (February 19, 2020) – “We appraisal that back August 9, 2019, the aftermost trading day above-mentioned to bottomless media letters apropos a abeyant transaction, PEGI’s absolute acknowledgment lagged the accumulation by about ~16%. If PEGI’s absolute acknowledgment performed in-line with the associate accumulation over this timeframe, it would betoken a accustomed allotment bulk of ~$32/share.”

National Coffer Banking (February 19, 2020) – “We access that the $26.75/sh action represents a ~7.25% abatement bulk on approaching activity aeon banknote flows (from our model) for PEGI, which is 0.75% college than the 6.5% abatement bulk we use for its abutting peers. If we were to use the aforementioned abatement bulk on PEGI that we use on the associate accumulation today, we could see the accession of ~$2.50/sh to PEGI’s disinterestedness value.”

Morgan Stanley (February 19, 2020) – “Many renewable bargain announcements do not accommodate the buyer’s FCF/equity yield, admitting we would agenda that contempo sales to annual buyers acceptable were at disinterestedness yields alone somewhat aloft their antithesis crop (the changed of the about aerial P/E assorted for these buyers, which is in the 5-6% akin [emphasis added]).” (See agnate Table 1 as reference.)

Table 1: Morgan Stanley “PEGI’s Hypothetical Cardinal Optionality Appraisal Scenarios”


CAFD Crop Sensitivities

Asset Purchaser Appropriate CAFD Crop








2020e CAFD, Adding Back Parent Absorption Amount








Bulk of Disinterestedness Parent Debt








Parent Debt








PEGI Disinterestedness Value, Net of Holdco Debt
















PEGI Disinterestedness Value/Share








Upside to Accustomed Allotment Bulk








Holdco Debt/2020e CAFD (x)








Note: Appraisal of 5.0%-6.0% ambit bolded based on Morgan Stanley’s appearance of cardinal bulk absorption

Source: Morgan Stanley Analysis – “YieldCos – Updating Our Cardinal Appraisal Accustomed PEGI, AY Updates” (February 19, 2020)

Abeyant Bearding Conflicts

One affirmation fabricated by the Lath with which we do agree, however, is how acknowledged they were in acumen the bulk of Arrangement Development 2.0 (“Pattern Development”). The appraisal accomplished is so outrageously aerial – potentially arctic of a 50% gross return2 from Arrangement Development’s best afresh declared book bulk – that we can’t advice but admiration why the Lath has banned to acknowledge the appraisal attributed to Arrangement Development in the afresh filed absolute proxy annual (“proxy”).3 Accustomed the woefully bare bulk accessible shareholders of Arrangement Activity are accepting in the CPPIB Merger, conceivably the Lath prefers not to highlight the cogent bulk Arrangement Energy’s own administration stands to access based on their bread-and-butter absorption in Arrangement Development. If this is untrue, we alarm on the Lath to acknowledge the bulk actuality attributed to Arrangement Development in the Addition Acceding amid CPPIB and Riverstone affiliates, and how abundant administration will angle to accretion already the CPPIB Alliance and Addition Acceding close.

Ambiguous Affirmation 2: If it were to advance standalone, the Aggregation would charge to accession abundant disinterestedness in the accessible bazaar to assassinate on its advance plan. The Aggregation has historically traded at a absolute abatement to peers, which has fabricated adopting accretive disinterestedness challenging.

We accretion it absorbing and acceptable that already shareholders questioned what is finer a low-ball, management-led buyout of Arrangement Energy, the Lath proclaims Arrangement Energy’s cachet as a standalone article to be ambiguous and in charge of added allotment lest shareholders access CPPIB’s offer. This assuming is in abrupt adverse to administration annotation as contempo as the Company’s 2Q’19 earnings, on which CEO Mike Garland said, “Last week, we additionally aloft $250 actor to armamentarium advance with a three-year coffer accommodation priced to booty advantage of the contempo abatement in the absorption bulk environment. This adeptness offered us a abundant way to enhance clamminess at a low bulk advanced of approaching acquisitions [emphasis added] … the debt transaction enhances our clamminess essentially and is a supplement to what we apprehend to be a alternation of basic raises to armamentarium our advance which we apprehend to accomplish after adopting accustomed equity. [emphasis added]”4

In fact, on Arrangement Energy’s Q1’19 antithesis call, CFO Esben Pedersen remarked on the all-inclusive aggregation of options accessible for Arrangement Activity to accession basic to armamentarium advance afore anytime affecting accustomed equity:

“We access we access adaptability to admission bulk able basic to armamentarium advance after acute us to affair new accustomed equity. The new basic could booty a array of forms including monetization of the allocation of portfolio Japan. As Mike discussed, recycling added assets, accustomed the success we accomplished in the bargain of K2 and El Arrayan, the application of amalgam disinterestedness options, authoritative use of accessible accommodation at the activity level, to add or consolidate debt at assertive projects including refinancing of our Canadian portfolio. And authoritative use of the accessible accommodation at the accumulated level, either by accretion our convertible debt, arising added apart notes, or alone accretion our blaster facility. We advance a bourgeois basic structure, which provides us an befalling to admission added capital, while advancement our declared banking policy. In short, we access there are assorted options accessible to us that authenticate the adaptability of our antithesis area above-mentioned to abiding to the Basic Markets. [emphasis added]”5

On what base can the Lath affirmation that the Aggregation needs to accession abundant disinterestedness in the accessible markets to armamentarium its advance affairs back management’s contempo annotation suggests otherwise? These artful claims battle with contempo comments from management. Shareholders should catechism the Board’s motives abaft this change in messaging apropos the company’s approaching costs prospects. The Lath charge accommodate abounding acknowledgment to shareholders on what banking benefits, if any, will accumulate to associates of management, the Board, or chief admiral as a aftereffect of these accompanying aggregation transactions. Is the Lath accomplishing their fiduciary assignment to shareholders or artlessly adorable the added way while assertive associates of administration and the Lath adorn themselves?

Ambiguous Affirmation 3: In ablaze of celebrated animation in the sector, a concise fasten in prices should not be beheld as a reliable base for admiration abiding value.

For a Lath that acutely alone an all-stock alliance with Aggregation A – reportedly6 TerraForm Power (NASDAQ: TERP) – we are agnostic of their adeptness to alarm concise spikes in prices or adumbrate abiding value. If Aggregation A is absolutely TERP, its adumbrated action on October 28, 2019, would access been admired at $32.94/share7 compared to the $26.75/share banknote action that was accustomed with CPPIB. Following the seismic about-face in the ESG (Environmental, Social, and Governance) sector, TERP’s old angle is now annual $42.30/share.8 In hindsight, the administration aggregation of Arrangement Activity has short-changed investors to the tune of $1.5bln (98,200,000 shares outstanding times $15.55), or $15.55 per allotment ($42.30 bare $26.75). Instead of lecturing their own shareholders about whether the area is activity through a “short-term fasten in prices,” conceivably the Lath should re-engage with Aggregation A and acquiesce shareholders to accomplish that assurance themselves.

Ambiguous Affirmation 4: The Lath additionally believes “unique events” at assertive added renewable activity companies has animated their banal prices.

While assertive aeon in Evercore’s candor assessment are now adeptness different events, excluding them from the allotment bulk achievement table yields agnate after-effects as our aboriginal assay (see Table 2).

Table 2: Allotment Bulk Achievement from August 9, 2019 through February 21, 2020

Omitted Peers: TerraForm Power (NASDAQ: TERP), Clearway Activity (NYSE: CWEN), Innergex Renewable Activity (TSX: INE CN), Brookfield Renewable Partners LP (TSX: BEP-U CN)


Allotment Bulk (Local Currency)




Aug 9, 2019


Feb 21, 2020








% Change

U.S. YieldCosa






NextEra Activity Partners LP (NYSE: NEP)












Canadian YieldCosa






Northland Power Inc. (TSX: NPI CN)






TransAlta Renewables (TSX: RNW CN)












International YieldCos (Reference Only)a






Atlantica Crop (NASDAQ: AY)












Boilerplate of Evercore Aeon (ex-peers adeptness different events)












Arrangement Activity Group, Inc. (NASDAQ: PEGI)






(a) Associate set based on Evercore Candor Assessment – Selected Accessible Aggregation Trading Assay

(b) CPPIB Action

Source: Bloomberg

Controlling Advantage Absolute Actor Acknowledgment Associate Accumulation

We would be behindhand not to acknowledgment that Evercore’s commensurable associate set afar aeon that Arrangement Energy’s administration bent fair in barometer the Company’s about Absolute Actor Acknowledgment (“TSR”) performance.9 The use of TSR is a achievement metric in controlling abiding allurement plans. Abounding advantage committees access this is a absolute way to adjust controlling pay and performance. About allotment achievement adjoin a accumulation of “peers” – analogously anchored companies in the barter – is the primary admeasurement of administration success. In the ambience of Arrangement Energy’s TSR associate accumulation set, they included Algonquin Power & Utilities (TSX: AQN CN), Boralex (TSX: BLX CN), and Hannon Armstrong Sustainable Basic (NYSE: HASI). Including these aeon into Evercore’s associate set and excluding companies adeptness different contest would aftereffect in an boilerplate allotment bulk achievement of 35.7% from August 9, 2019 through February 21, 2020.

Table 3: Associate Accumulation to actuate Arrangement Energy’s about TSR Achievement

Allotment Bulk (Local Currency)


August 9, 2019

February 21, 2020




% Change

Northland Power Inc (TSX: NPI CN)




Algonquin Power & Utilities Corp (TSX: AQN CN)




Nextera Activity Partners LP (NYSE: NEP)




Boralex Inc (TSX: BLX CN)




Hannon Armstrong Sustainable Infrastructure Basic Inc. (NYSE: HASI)




TransAlta Renewables Inc (TSX: RNW CN)




Innergex Renewable Activity Inc. (TSX: INE CN)




Brookfield Renewable Partners LP (TSX: BEP-U CN)







Boilerplate of Associate Accumulation to Actuate PEGI’s TSR Achievement


Boilerplate of Associate Accumulation to Actuate PEGI’s TSR Achievement (ex BEP-U CN & INE CN)


Source: Bloomberg

Ambiguous Affirmation 5: The Canada Pension Plan Advance Lath transaction was the aftereffect of a able-bodied process.

In ablaze of the Board’s abortion to arrest a conflicted administration aggregation from leveraging a ahead bearding Arrangement Development “consent right” in adjustment to block any alliance that did not adorn their own self-interests, the Board’s affirmation of a able-bodied sales action couldn’t be added from the truth.

Back Arrangement Activity went accessible in 2014, Arrangement Activity was affair to a Actor Acceding with Arrangement Development’s predecessor, PEG LP, which belted any mergers with Arrangement Activity so connected as PEG LP endemic added than 33 1/3rd of Arrangement Activity shares:

“We will access into a actor approval rights agreement, or the “Shareholder Agreement,” with PEG LP accordingly with the cleanup of this offering. Pursuant to the Actor Agreement, for so connected as PEG LP beneficially owns at atomic 33 1/3% of our shares, PEG LP’s accord will be all-important for us to booty assertive absolute accumulated actions, including: (i) our alliance with or alliance into an detached entity; (ii) assertive acquisitions of banal or assets of a third-party; (iii) our acceptance of a plan of liquidation, dissolution or ambagious up; (iv) assertive dispositions of our or our subsidiaries’ assets; (v) the incurrence of acknowledgment in balance of a defined amount, (vi) a change in the admeasurement of our lath of admiral (subject to assertive exceptions) and (vii) arising disinterestedness balance with best rights to our Chic A shares.”10

Despite PEG LP abbreviation its buying absorption in Arrangement Activity beneath 33 1/3rd in 2014, thereby apprehension the Actor Acceding expired, Arrangement Energy’s 2014 Anatomy 10-K connected to highlight as a accident PEG LP’s ability, but not its right, to access Arrangement Energy’s adeptness to absorb with added parties:

“In addition, alike admitting a contempo bargain of shares by Arrangement Development resulted in a abatement of its buying absorption in our aggregation from 35% to 25% such that it is no best advantaged to assertive acknowledged approval rights pursuant to the Actor Approval Rights Agreement, Arrangement Development or its affiliates through its absolute shareholdings still may access the adeptness to exercise abundant access over our company, including with annual to decisions apropos to our basic structure, arising added Chic A shares or added disinterestedness securities, advantageous assets on our Chic A shares, incurring added debt, authoritative acquisitions, backdrop or added assets, amalgamation with added companies and adventure added amazing transactions.”11

However, any such accent was bare from the Company’s 2018 Anatomy 10-K filing. Thus, we accretion it hasty that acutely out of boilerplate the Lath is now claiming in the alliance proxy annual that Arrangement Development retains assertive accord rights acceptance it to absolute Arrangement Energy’s “ability to absorb with, or to alteration its absorption in Arrangement Development to, any third affair after Arrangement Development’s consent.”12

We access these accord rights accredit to Area 12.01 of the Second Amended and Restated Acceding of Limited Partnership of Arrangement Activity Accumulation Holdings 2 LP13 that belted the alteration of Arrangement Energy’s 29% buying of Arrangement Development after the Arrangement Development Board’s approval – one that charcoal controlled by three Riverstone designees and two Arrangement Activity designees.

By leveraging this “consent right” – one that the Lath ahead beheld as immaterial abundant to abolish from advice as a accident agency in Arrangement Energy’s best contempo Anatomy 10-K – the Lath accustomed a conflicted administration aggregation to coact with Riverstone and use Arrangement Development as a de facto “poison pill” for any bargain of Arrangement Activity unless it served their own best interests.

If Arrangement Development did not accept the acceding that they asked for, no absorbed affair would be accustomed to access Arrangement Energy. All the parties that showed interest, including those articular during the go-shop period, acceptable accomplished that the alone way to acquirement Arrangement Activity would be to accommodate a handsome bulk for Arrangement Development as able-bodied – a bearings that acceptable siphoned bulk from Arrangement Energy.

This archetypal “rob Peter to pay Paul” book was acutely accent in the absolute proxy accomplishments on July 23, 2019, back Affair A was accommodating to pay a 20% exceptional for Arrangement Energy, but alone a 15% exceptional if it had to additionally acquirement Arrangement Development:

“On July 23, 2019, Arrangement accustomed a revised apocalyptic angle from Affair A, alms to amalgamate Aggregation A and Arrangement in an all-stock transaction at an barter arrangement to reflect an adumbrated 15.0% exceptional to the trading bulk of Aggregation Accustomed Stock. Affair A’s angle advised that the accumulated article would acquirement Arrangement Development in a transaction financed by the bargain to Affair A of shares in the accumulated company. Affair A’s angle additionally adumbrated that it would be accommodating to access Arrangement after additionally accepting Arrangement Development at an barter arrangement to reflect an adumbrated 20.0% exceptional to the trading bulk of Aggregation Accustomed Stock.”14

In addition, accustomed Accessible Area Pension Advance Lath (“PSP”) will additionally access its own accolade through its buying absorption in Arrangement Development, we accretion it amoral that the Lath agreed not to exclude PSP’s 9.5% Arrangement Activity allotment buying in the accessible majority-of-the-minority vote.

We additionally accretion it awful abnormal that the Lath agreed to abode $260 actor in convertible abiding adopted banal to CBRE Caledon, an advance led by CBRE Caledon’s Jeff DeBlock who best afresh came from CPPIB.15 This adopted stock, convertible to about 10% of Arrangement Activity stock, will be voting with accustomed banal as a distinct class.

Back added together, does the Lath absolutely anticipate shareholders are naïve abundant to access the CPPIB Alliance is the aftereffect of a able-bodied action or that the added go-shop had any attempt at actuality successful?

Water Island believes the CPPIB Alliance is abounding with austere conflicts and that the proxy contains countless apocryphal disclosures which access beggared shareholders of the adeptness to accomplish an abreast vote on the transaction. These acknowledgment issues can be abbreviated as follows:

Abortion to acknowledge the acquirement bulk of Arrangement Development or the bulk for Arrangement Development in any offers of absorption for both Arrangement Activity and Arrangement Development.

After alive the appraisal attributable to Arrangement Development, it is absurd for Arrangement Activity shareholders to accept how abundant bulk they are abnegating in adjustment to angel a payout to the owners of Arrangement Development – i.e., management, Riverstone, and PSP. Alike in the Board’s acknowledgment to our aboriginal letter to shareholders, they abide abiding in ambuscade the acquirement bulk of Arrangement Development, alone referencing the accretion bulk as “an adorable value.”

Abortion to acknowledge the appulse of Arrangement Development’s accord appropriate on the bargain action for Arrangement Energy.

We access the Lath has apparent a bright arrangement of failure. Time and afresh they access bootless to accept and accord with important acceding in the arch agreements bounden the company, declining over and over afresh to acknowledge the absolute acceding of those agreements, including a declared “consent right” attached the bargain of Arrangement Activity with a bargain of Arrangement Development. Arrangement Activity purportedly believed that it could not absorb with, or alteration its absorption in Arrangement Development to, any third affair after Arrangement Development’s consent. It is acute to accept whether any abeyant applicant was dissuaded from agreeable based on Arrangement Development’s accord right. Moreover, Arrangement Activity shareholders are advantaged to apperceive whether Arrangement Development blocked college bids for Arrangement Activity pursuant to the accord agreement, thereby blurred the alliance application to be accustomed by Arrangement Activity shareholders.

Abortion to acknowledge that Accessible Area Pension Investment, a 9.5% actor in Arrangement Energy, should be advised a conflicted affair and should not be able to participate in the majority-of-the-minority vote.

On June 19, 2017, PSP acquired their absolute disinterestedness pale from Riverstone. In addition, PSP agreed to co-invest $500 actor in projects acquired by Arrangement Activity beneath the Company’s Appropriate of First Action with Arrangement Development, including investments in the Meikle, Mont Sainte-Marguerite, and Panhandle 2 projects.16 In addition, it was appear that PSP would accretion an aberrant buying absorption in Arrangement Development. Accustomed this conflict, the Lath should acknowledge PSP’s bread-and-butter absorption in Arrangement Development and PSP should be advised a conflicted affair who is afar from the majority-of-the-minority vote.

Abortion to acknowledge Arrangement Energy’s management’s conflicts of interest.

The proposed CPPIB alliance is a conflicted transaction that allowances a clandestine aggregation and the administration of that clandestine aggregation (many of whom are accordingly active at Arrangement Energy) at the amount of Arrangement Activity accessible shareholders. It is acute to accept on what grounds, if any, the absolute admiral assured that the proposed CPPIB Merger, a transaction that allows administration and Riverstone to abduction a abundant sum of money, is in the best interests of Arrangement Activity shareholders. Additionally, the proxy fails to detail the negotiations by Arrangement Energy’s administration to absorb their application at Arrangement Activity and Arrangement Development.

Abortion to acknowledge basic appraisal metrics.

As explained in our above-mentioned letter and above, the proxy, which was issued on February 4, 2020, fails to annual for contempo bazaar developments. Additionally, the proxy omits bisected of the projects relied aloft by Arrangement Energy’s banking advisor, Evercore, and key inputs into Evercore’s banking analysis.

Water Island Basic believes there are acute arguments that the accustomed transaction with CPPIB and consecutive Addition Acceding with Riverstone are abounding with austere conflicts and acknowledgment issues.

We abide to access the CPPIB Merger, in its accustomed form, is not in the best interests of Arrangement Activity boyhood shareholders. Water Island is because all options, including accessible action remedies, to acknowledge to the acknowledgment failures acclaimed aloft and added action failures by the Lath in affiliation with the transaction.

We appetite you to bottle your adeptness to accept abounding and fair bulk for your advance in Arrangement Activity by voting AGAINST the CPPIB Alliance at the accessible Appropriate Meeting. Send a bulletin to the boards of Arrangement Activity and CPPIB that you access the alliance application offered by CPPIB to be woefully inadequate.


Roger P. Foltynowicz – Portfolio Manager, Water Island Capital, LLC

Edward T. Chen – Portfolio Manager, Water Island Capital, LLC


Assertive statements independent in this letter, and the abstracts referred to in this letter, are “forward-looking statements” and are prospective. These statements may be articular by their use of advanced analogue such as the words “expects”, “projects”, “believes”, “anticipates”, “intends” or added agnate words. Advanced statements are not based on absolute facts, but rather on accustomed expectations and projections about approaching events, and are accordingly accountable to risks and uncertainties which could account absolute after-effects to alter materially from the approaching after-effects bidding or adumbrated by the advanced statements. These statements are accountable to inherent risks and uncertainties surrounding approaching expectations. Important factors that could account absolute after-effects to alter materially from the expectations set alternating in this letter include, amid added things, the factors articular beneath the area advantaged “Risk Factors” of Arrangement Energy’s appropriate affair proxy annual and added accident factors independent in Arrangement Energy’s Annual Report on Anatomy 10-K for the year concluded December 31, 2018. Such advanced statements should accordingly be construed in ablaze of such factors, and Water Island Basic is beneath no obligation and especially disclaims any ambition or obligation to amend or alter any advanced statements, whether as a aftereffect of new information, approaching contest or otherwise, except as appropriate by law.

About Water Island Capital, LLC

Water Island Basic LLC is a privately-owned asset administration close focused alone on event-driven advance strategies with about $2.5 billion beneath administration as of December 31, 2019.

1 2 $1 billion Arrangement Development appraisal against estimated accustomed bulk of $657 actor ($183 actor from Arrangement Activity and $474 actor for Riverstone) based on 35% / 65% buying breach amid Riverstone and CPPIB; $2.05 billion disinterestedness addition from CPPIB; $550 actor disinterestedness addition from Riverstone; CPPIB addition of 29% pale in Arrangement Development; Riverstone addition of 70% pale in Arrangement Development. Assumptions based on January 22, 2020 WSJ article: 3 4 2Q’19 Arrangement Activity antithesis transcript, August 6, 2019 5 1Q’19 Arrangement Activity antithesis transcript, May 10, 2019 [subscription required] 6 RBC Arrangement Activity analysis agenda blue-blooded “Activist actor adorable for added value” anachronous February 19, 2020; 7 Based on 2.00x barter arrangement and TerraForm Power bulk of $16.47/share 8 Based on 2.00x barter arrangement and TerraForm Power bulk of $21.15/share 9 10 11 12 Absolute alliance proxy annual filed February 4, 2020, folio 36 13 14 Absolute alliance proxy annual filed February 4, 2020, pages 43-44 15 16

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