David Einhorn’s Greenlight Capital has had a stake in troubled solar firm SunEdison for quite some time, and now the billionaire appears to have waded into the fray in an attempt to fix the problems it faces. Shares of the company surged in early trading this morning, climbing by as much as 8.68% as investors hope for change based on Greenlight’s involvement.
SunEdison deals with huge problems
The Wall Street Journal‘s Liz Hoffman cites unnamed sources who reportedly told her that Einhorn’s firm is close to being able to appoint a board member. SunEdison shares have tumbled amid a controversial debt raise, the seemingly problematic Vivint Solar acquisition, liquidity concerns, job cuts, the departure of some key executives, and worries about whether its business model is sustainable as it stands. Already year to date, the stock is down by more than 40%. The media outlet’s sources said the deal between the solar company and Greenlight could be announced sometime this week.
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By appointing a board member, Einhorn will have greater influence over what happens next at the company. The departures of SunEdison’s chief operating officer and another independent board member were announced last week. Those exits follow the resignations of some other independent board members at two of the company’s subsidiaries as part of a shakeup of management in November.
Greenlight to defend its stake
The Wall Street Journal’s sources reportedly said that Greenlight Capital will appoint a board member from outside the firm. According to a regulatory filing, the hedge fund firm had about a 6% stake in SunEdison at the end of September. The firm then upped its stake in December by taking part in a fundraising round which handed out warrants to debt investors. As of Jan. 11, Greenlight held approximately 26 million SunEdison shares, amounting to an 8% stake.
David Einhorn’s bet on the solar company was initially one of his firm’s best-performing investments, but things took a turn for the worse late last year, sending shares into a downward spiral that resulted in a 20% loss for 2015, Greenlight said in a letter to investors. In October, the billionaire told Greenlight investors that SunEdison was just misunderstood and blamed its financial statements for the share price decline as he said they were difficult to decipher.
SunEdison’s debt raise calls business model into question
The company’s biggest problem has been its structure, which depends on two yieldcos which operate as subsidiaries even though they are both traded publicly. While this structure has become extremely popular among solar companies because it enables them to fund projects by freeing up some cash, it appears not to be working for SunEdison.
Analysts blasted the decision to extinguish debt because it appears to place all of the liability on the subsidiary TerraForm Power. The deal raised questions about liquidity at SunEdison and whether it can survive in the long term. All of the problems sent the solar company’s shares into a dive.
Is it too late to save SunEdison?
With all of the problems facing SunEdison, it might be too late to save the company, but apparently that isn’t keeping Einhorn from trying. His firm has a lot at stake when it comes to turning things around. While Einhorn has taken up an activist position in other companies in the past, he is not a frequent activist. It seems quite likely that the size of his stake and how much his firm lost are playing a role in Greenlight’s decision to go activist on SunEdison. Seeking Alpha contributor Munger Fan sees upside possibilities for SunEdison and said it’s about time Einhorn got involved.
Greenlight Capital just filed a 13D stating:
Greenlight originally acquired shares of Common Stock of the Company for investment purposes.From January 15, 2016 to January 25, 2016, representatives of the Reporting Persons engaged in discussions with representatives of the Company’s board of directors (the “Board”), including the Chairman, and other representatives of the Company to discuss (x) the performance of the Company’s senior management team, (y) the composition of the Board and (z) future issuances of the Company’s equity and equity-linked securities.Specifically, Greenlight has proposed that (x) the Company appoint a person designated by Greenlight to the Board (as well as to the Board’s Nominating and Corporate Governance and Finance and Investment Committees) as an independent director, and (y) the Company’s bylaws be amended to provide that, for a period of two (2) years following the date of such bylaw amendment, the Company would not be permitted to make equity issuances without a supermajority vote of the Board, except in limited circumstances. To date, no understanding has been reached between Greenlight and the Company with respect to these issues.Greenlight intends to evaluate on an ongoing basis its investment in the Company and its options with respect to such investment. In connection with such evaluation, Greenlight may seek additional calls and meetings with members of the Board and/or senior management of the Company, or communicate publicly or privately with other stockholders or third parties to indicate Greenlight’s views on issues relating to the strategic direction undertaken by the Company and other matters of interest to stockholders generally, including management. As part of such evaluation and any such discussions, Greenlight may make recommendations, suggestions or proposals to the Company that may relate to or result in one or more of the transactions specified in clauses (a) through (j) of Item 4 of Schedule 13D, including but not limited to: changes in the strategic direction of the Company as a means of enhancing shareholder value, changes to the Board, changes to the Company’s senior management, changes to the Company’s charter or bylaws, acquisitions or dispositions of securities of the Company, changes in the Company’s capital structure or dividend policy, and the sale of material assets or another extraordinary corporate transaction, including a sale of the Company.Depending on various factors, including the Company’s financial position and strategic direction, the outcome of the matters referenced above, actions taken by the Company’s board of directors, price levels of the Common Stock, other investment opportunities available to the Reporting Persons, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investments in the Company as they deem appropriate, including, without limitation, making or causing further acquisitions of securities of the Company, including Common Stock, from time to time and disposing of, or cause to be disposed, any or all of the securities of the Company, including Common Stock, held by Greenlight at any time.