David Tepper’s Appaloosa Management lost the quest to block SunEdison’s acquisition of Vivint Solar last night, and shares of both firms skyrocketed by more than 30% today, with SunEdison stock climbing as high as $2.22 and Vivint Solar shares climbing to $7.91. In all between last night and this morning, SunEdison shares climbed by as much as 120%.
David Tepper fails in bid to block SunEdison/ Vivint combination
Appaloosa sued SunEdison in an attempt to keep it from acquiring Vivint Solar, a deal that has received much criticism since it was announced. Tepper’s firm holds shares of SunEdison’s yieldco TerraForm Power, and the main argument has been that the deal wasn’t fair for TerraForm as it could shift all the liability onto the yieldco and away from SunEdison, which would receive cash from TerraForm as part of the deal.
If Tepper had won in his bid to block the transaction, however, it could have sounded the death knell for SunEdison because it would keep the company from getting the cash infusion it desperately needs from TerraForm. The judge who ruled on the case last night said that although Appaloosa had raised some valid points of concern, the firm did not prove that TerraForm investors would be harmed by it.
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Appaloosa Management’s loss a plus for SunEdison stock
Deutsche Bank analyst Vishal Shah said the Appaloosa lawsuit was one of the biggest overhang on SunEdison stock, and now the chips are in line for the deal to be consummated. Vivint shareholders also approved the deal on Thursday, putting another chip in place. Shah expects the deal to close by March 18 and sees two possible scenarios after that.
One is that SUNE finds a buyer for Vivint Solar’s operating assets, and the other is that TerraForm is required to purchase those assets. However, Shah sees the latter option as being more likely because they think a buyer will emerge, and he sees this as being the best possible option for both SUNE and TerraForm Power.
Is this the final word on David Tepper’s argument?
So does this mean that the deal between SunEdison and Vivint will actually close? Seeking Alpha contributor EnerTuition notes that there are plenty of reasons to think that David Tepper’s loss does not mean the deal has been sealed as several things have happened since the deal was initially signed.
For example, the residential solar market has remained in freefall, which means the solar assets Vivint brings to the table are not as valuable as they were then. Further, states continue to refresh decisions on net metering that have weighed on the residential solar market, impacting SolarCity and other firms that focus on the residential side much more than those that focus more on businesses and utilities. Meanwhile the cost of capital and the discount rates used for solar assets have climbed.
Additionally, SunEdison’s recent capital raise went horribly and has weighed on its capital structure, spurring liquidity concerns among analysts, and EnerTuition notes that it has taken hits from setbacks in Hawaii and from the restructuring of its wafer and polysilicon operations.
SunEdison works with Greenlight Capital
There’s also another factor I would like to point out, and that’s the involvement of David Einhorn of Greenlight Capital. SunEdison agreed recently to work with him on corporate governance issues after he went activist on it, and last month a former Greenlight partner joined the solar company’s board. It’s anyone’s guess what Einhorn will do next, but his involvement is a bright spot for SUNE and all the involved companies. He’s held a stake in SUNE for quite some time, making it no secret that he thinks well of the company despite the recent controversies surrounding it.