Vivint Solar ends $2.2bn SunEdison merger

Mar 08, 2016, 1:10 PM EST
(Source: GRID Alternatives/flickr)
(Source: GRID Alternatives/flickr)

Vivint Solar ended its proposed $2.2 billion merger with SunEdison, citing a "willful breach" of the agreement by Sun Edison.

Reuters reports:

Rooftop solar panel installer Vivint Solar Inc (VSLR.N) said on Tuesday it had terminated an agreement under which it would have been taken over by solar energy company SunEdison Inc (SUNE.N) after SunEdison failed to "consummate" the deal. The cash-and-stock deal, worth $2.2. billion when it was forged last July, had faced criticism from hedge funds and other investors as SunEdison's finances and share price weakened. Vivint said it intended to "seek all legal remedies available" as a result of the "willful breach" of the merger agreement by SunEdison. "We believe both companies will be better off on their own," Cowen and Co analysts wrote in a note to clients, noting that U.S. lawmakers had extended solar investment tax credits beyond 2016, breathing new life into the industry. The Vivint deal was set to expire on March 18, the analysts said, adding that SunEdison could be liable for an amount "well above" the breakup fee of $34 million following a court hearing or likely settlement.

The Wall Street Journal writes:

When the deal was announced in July 2015, it was worth $1.9 billion. SunEdison and Vivint later renegotiated the deal, reducing the cash portion by $2 to $7.89 a share. And Vivint’s majority shareholder, Blackstone Group LP, agreed to take stock in lieu of cash and to provide SunEdison with a $250 million credit line. SunEdison’s market capitalization has declined to about $600 million from nearly $10 billion as of last July. Investors have soured on SunEdison’s “yieldco” business model, which relies heavily on selling finished power projects to two publicly traded subsidiaries. Stock-price tumbles at those entities, TerraForm Power Inc. and TerraForm Global Inc., made it harder for them to raise funds to buy projects, setting off a series of investor worries. Hedge fund Appaloosa Management LP, a large TerraForm Power shareholder, sued earlier this year to block the Vivint deal, which would require TerraForm Power to buy about $800 million of Vivint’s projects in the future. Appaloosa has accused SunEdison of pressuring its yieldcos to overpay for assets and said the setup has “obvious conflicts.”

Bloomberg notes:

In the short term, the move is seen as good for SunEdison because it won’t be a drain on its short-term liquidity. The threat of potential legal action will be an issue in the longer term, according to Colin Rusch, an analyst at Oppenheimer & Co. “This move was a clear indication that the company was not able to finance the merger,” Rusch wrote in a research note Tuesday. A “legal overhang” will continue for SunEdison “as Vivint Solar shareholders line-up for compensation through the courts.” SunEdison’s trouble in completing the deal weighed on yieldcos, which raised at least $8.9 billion in the public markets in the first seven months of 2015, according to Bloomberg New Energy Finance. Since the Vivint deal was announced, about $1.5 billion flowed into the industry.