SunEdison, TerraForm Climb as Vivint Cancels Criticized Deal

  • Rooftop panel installer says SunEdison breached terms of deal
  • Vivint says it will seek legal remedy for failed deal

SunEdison Inc., the world’s biggest renewable-energy developer, climbed after its $1.9 billion deal to acquire Vivint Solar Inc. was canceled by the target.

After the deal was delayed, renegotiated and challenged in court, SunEdison failed to meet a Feb. 26 deadline to complete the purchase, according to a filing Tuesday from Vivint.

SunEdison rose 5.3 percent to $2.00 at the close in New York. TerraForm Power Inc., a holding company formed by SunEdison that had agreed to buy some of Vivint’s assets, gained 3.8 percent. Vivint fell 20 percent.

The move is a relief to shareholders of SunEdison, which bid for Vivint in July to feed its growth strategy. Investors balked at Chief Executive Officer Ahmad Chatila’s plan to pay a 52 percent premium for Vivint and raised concerns about the amount of debt the company had taken on. Vivint Solar, controlled by Blackstone Group LP, plans to seek legal remedy.

“The breakup fee on the transaction was negotiated down to $34 million, however the liability to SunEdison could be greater following a court hearing or likely settlement,” Jeffrey Osborne, an analyst at Cowen & Co., said in a research note Tuesday. “We see this new development as a positive for the SunEdison ecosystem.”

The deal had dragged down SunEdison’s shares and also raised questions about the viability of its business model, including creating the two TerraForm units, so-called yieldcos that deliver income to investors from operating renewable energy projects.

Tepper’s Victory

The cancellation of the Vivint deal is a victory for billionaire hedge fund manager David Tepper, whose Appaloosa Management LP is TerraForm’s third-largest shareholder. Tepper sued to block TerraForm’s role in the acquisition of Vivint’s residential solar leases, which he said were riskier than power-purchase agreements with corporate and utility buyers.

“We think it’s a good thing for TerraForm,” Tepper said in a phone interview Tuesday. “There’s good value in an independent TerraForm. It’s got good assets.”

‘Legal Overhang’

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.

Vivint blamed SunEdison for failing to meet conditions set out in the merger deal and suggested it will sue for compensation.

“SunEdison’s failure to consummate the merger when required pursuant to the terms of the merger agreement constitutes a willful breach of the merger agreement, and Vivint Solar intends to seek all legal remedies available to it in respect of such willful breach,” Vivint said in a statement Tuesday.

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