When SunEdison laid out plans to buy the residential PV installer Vivint Solar for $2.2 billion last July, Vivint CEO Greg Butterfield was ecstatic.
"We are excited to join the SunEdison residential and small commercial team, which has successfully developed a wide range of channels complementing those at Vivint Solar," said Butterfield at the time.
The Street wasn't as enthusiastic. Investors worried about SunEdison's growing debt load and expressed confusion about its residential solar strategy. Nine months later, SunEdison's stock has lost more than 90 percent of its value and Vivint's stock price has dropped by half.
Vivint Solar is no longer excited about the acquisition.
On Monday night, Vivint sent a letter terminating the merger, citing "SunEdison's failure to meet its obligations."
"In particular, 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," wrote Vivint Solar in a statement.
Even after SunEdison restructured the acquisition to reduce its cash burden, it had trouble obtaining bank loans to finance the deal.
Analysts at Oppenheimer Equity Research say the move "suggests SUNE liquidity/bankruptcy risks could be serious."
However, termination of the deal could also be good for SunEdison's YieldCo, TerraForm Power, which was obligated to buy $789 million worth of rooftop solar projects from Vivint. "It is likely in our view that TERP will see substantial relief from these obligations," wrote Oppenheimer analysts.
The next step will be court, where Vivint is suing SunEdison for breaching the terms of the agreement.
"VSLR shareholders are risking loss of significant value; precedents suggest the company will not get full recovery in the courts," wrote the Oppenheimer analysts.
However, Vishal Shah, a managing director at Deutsche Bank, believes the move will be good for Vivint Solar.
"This development now shifts the focus from near-term liquidity and balance-sheet stress for both TERP and SUNE to potential legal ramifications from VSLR/Blackstone," wrote Shah. "While the termination of the merger agreement could create some near-term weakness for VSLR shares, we believe it may not be so bad in the longer term."
Strong demand for rooftop solar in North America will allow Vivint to continue growing on its own, wrote Shah. "Considering the five-year ITC extension, we believe the intrinsic value of VSLR's devco business has improved significantly compared to the time of the merger announcement and street was not giving any credit to VSLR shares."
SunEdison delayed release of its annual financial report until March 15. The company will likely provide more details on the failed merger at that time.
How did SunEdison get to this point? Read Eric Wesoff's timeline of the developer's implosion, shown below.
SunEdison's tale of woe timeline
June 2014: The launch of SunEdison's first YieldCo, TerraForm Power.
Nov. 2014: SunEdison and TerraForm acquire wind developer First Wind for $2.4 billion.
July 2015: TerraForm Global, a YieldCo focused on investment in Africa and Asia, launches.
July 2015: SunEdison's $2.2 billion plan to acquire residential installer Vivint in cash, stock and notes does not delight investors. The stock price collapses upon the announcement.
Sept. 2015: CEO Ahmad Chatila sends a memo notifying employees of a 15 percent workforce cut. GTM's Stephen Lacey reports: "Sources within the company expressed worry and surprise that the cuts didn't impact the architects of the Vivint acquisition."
Dec. 2015: SunEdison revised the terms of its acquisition of Vivint.
Jan. 2016:
- David Tepper, billionaire hedge-fund founder and 10-percent-owner of TerraForm, sues SunEdison in an attempt to block Vivint assets (and debt) from being moved to the YieldCo
- Steve Tesoriere, an activist investor and architect of SunEdison’s YieldCo strategy, resigns from the board. COO Francisco Perez Gundin and Paul Gaynor (former First Wind CEO) depart.
- SunEdison announced the pricing of $725 million of a second lien secured term loan intended to improve the company's liquidity position.
Feb. 2016:
- SunEdison named Claire Gogel, formerly of David Einhorn's hedge fund Greenlight Capital, to its board of directors. Greenlight Capital has a 6.8 percent stake in SunEdison
- Vivint Solar shareholders approve SunEdison's $1.9 billion acquisition of the residential solar company.
- Hawaiian Electric cancels three SunEdison projects on the islands worth $350 million, with $42 million already spent. Almost 100 workers lose their jobs, according to PBN.
- SunEdison to sell its Japanese solar unit to Thai oil company Bangchak for $82 million, according to Fortune.
- UBS cut its price target for the company from $2.00 to $0.75 per share. Many other equity analysts downgrade the shares as well.
- SunEdison is selling its Malaysian silicon wafer factory and plans to close its Texas polysilicon factory
March 2016:
- SunEdison delays its 2015 and Q4 financial report as it resolves two internal investigations into the accuracy of its financial disclosures.
- Goldman Sachs, Barclays, Citigroup and UBS, the banks loaning SunEdison ~$2 billion for its Vivint acquisition, “have balked at providing [the] loans” according to the The Wall Street Journal. If the deal is not closed by March 18, either party could then walk away, reports WSJ.
- SunEdison and TerraForm Power announce a $28.5 million settlement and termination of the Latin America Power acquisition.