Since mid-July, shares of SunEdison Inc. (NYSE: SUNE) dropped about 75% of their value, from a high close of $32.13 to Friday’s closing price of $8.27. It is probably not coincidental that the stock-price slide started when SunEdison announced its $2.2 billion acquisition of rooftop solar installer Vivint Inc. (NASDAQ: VSLR).
On Monday morning, the company announced a series of actions designed to “optimize business operations in alignment with current and future market opportunities, and accelerate cash flow positive operations.” To that end, SunEdison said it will focus on high profit-potential markets like the United States, India, China and Latin America; simplify its business structure by “removing duplicative services” piled up by the company’s recent acquisition spree; and “rationalize purchased services to deliver cost reductions and capture economies of scale.”
Greentech Media reported last Friday that SunEdison’s CEO sent a note around to employees saying that the company will have to fire about 10% of its 7,300 employees. That, combined with the Monday press release, sent the stock to an intra-day high of $9.34 Monday morning.
A more detailed evaluation of SunEdison was posted last Friday at the Bronte Capital blog. Bronte operates mostly as a short seller, but in the case of SunEdison has taken a long position. Bronte’s John Hempton writes:
It took us a while to understand why they had fallen so hard. The argument comes down to complex accounts, lots of debt and a peculiar acquisition of door to door marketing company (Vivint).
Hempton explains that SunEdison’s roots are in the semiconductor business (it was formerly known as MEMC) and that in semiconductors “operating leverage is everything.” But SunEdison and other solar players have begun to form yieldcos; that is, separate, publicly traded companies formed by an alternative energy provider to hold the cash-generating assets of the provider’s clean energy generating assets. These yieldcos are essentially non-bank financial companies (think GE Capital).
The Vivint acquisition, which Hempton says “looks strange” given that roof-top solar projects are less attractive than utility scale solar farms, added to SunEdison’s woes when hedge funds with “oversized positions” in the company sold up and left town.
SunEdison faces one overarching issue: “Can they find and develop new solar plants and drop them down into project financed bankruptcy remote vehicles and (a) make a profit and (b) ensure the new owners of those vehicles make enough return to keep them coming back for the next vehicle?” In order for the company to achieve these goals, it needs to have access to affordable capital, and in order to have that access it needs to regain the capital market’s trust.
How to do that? Fire CEO Ahmad Chatila. Why? Because the company Chatila created is a company that needs a different kind of chief executive. SunEdison needs a risk manager in the corner office according to Hempton, not a visionary like Chatila. Capital markets want a CEO who can “talk about asset liability matching, FX risk mitigation and basically sounds like the CEO of a mortgage REIT, not a semiconductor visionary.” Here is Hempton’s full post.
In the noon hour Monday, SunEdison traded at $9.15, up more than 10%, in a 52-week range of $6.56 to $33.45.