Distributed energy firm Vivint Solar has terminated an agreement under which it would have merged with renewables giant SunEdison in a $2.2 billion deal.
The Lehi, Utah–based company told investors on March 8 that it had delivered a letter notifying SunEdison that the merger agreement had been terminated, owing to SunEdison’s “failure to meet obligations” specified by the agreement.
“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,” the company said.
A Shadowy Deal
The companies agreed to merge last July in a $2.2 billion deal that held promise for the distributed generation business model, which has seemingly challenged the bottom lines of traditional utilities. The deal involved the acquisition of Vivint Solar’s 470-MW rooftop solar portfolio for $922 million in cash by SunEdison yieldco TerraForm Power.
But according industry observer EnerTuition, the Vivint Solar stock price “has been in arbitrage hell since the SunEdison acquisition announcement.”
Vivint Solar offers distributed solar energy to residential customers based on 20-year contracts at prices that are “below their current utility rates,” it says. “Our customers pay little to no money upfront, and typically save 20% to 40% on solar-generated electricity rates relative to utility-generated electricity rates following system interconnection to the power grid and continue to benefit from locked-in energy prices over the term of their contracts, insulating them against unpredictable increases in utility rates,” the company says in its 2014 annual report.
While Vivint saw stellar growth from its inception in May 2011 through December 2014—when it installed solar systems with an aggregate 228.2 MW of capacity—over the latter part of 2015, its installations grew only 24% as the rooftop solar industry saw a general slowdown. Even though Congress renewed the investment tax credit last December, the company has reduced growth prospects significantly, more than halving 2017 installations from 1.02 GW to 500 MW and slashing 2016 prospects from 600 MW to 350 MW.
Meanwhile, the company suffered the secondary setback of a lawsuit filed by hedge fund Appaloosa Management to prevent SunEdison’s Terraform Power from acquiring Vivint Solar’s assets. Appaloosa claimed that the acquisition was not in the interest of the yieldco’s shareholders, mostly because it would transform the company’s business model and force it to take on a debt of $960 million.
Is the Sun Setting on SunEdison?
At the same time, SunEdison has been struggling to quell its own financial crises. In September 2015, months after it announced plans to acquire Vivint, CEO Ahmad Chatila announced a 15% workforce reduction. Then, last November, the company reported a wider loss than expected for that quarter and halted sales to its yieldcos (units that hold solar, wind, or other power assets for the parent company and pay dividends). In January 2016, as David Tepper, the billionaire owner of Appaloosa Management, filed a suit to block the Vivint acquisition, three high-level executives abandoned the firm.
In February, meanwhile, Hawaiian Electric terminated three utility-scale solar projects totaling 112 MW and valued at $350 million—with $42 million already spent—citing concerns about SunEdison’s financial situation.
Last week, SunEdison announced it had been forced to delay its annual report, owing to an internal investigation launched at the end of December into allegations made by former executives that leadership misrepresented SunEdison’s financial position.
And early this week, The Wall Street Journal reported that a number of banks “have balked” at providing SunEdison loans they had committed to fund the Vivint acquisition.
As some observers posit, the end may be near. In a detailed timeline illustrating the company’s “implosion,” GreenTech Media reported that “rumors are rampant that SunEdison will file for bankruptcy this month.”
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)