Energy Business

How Sunrun's Vivint Acquisition Compares to Buffett's Natural Gas Deal With Dominion

Residential solar provider Sunrun Inc. (NASDAQ: RUN) announced late Monday that it would acquire competitor Vivint Solar Inc. (NYSE: VSLR) in an all-stock transaction that values Vivint at about $3.2 billion, including debt. Vivint shareholders will receive 0.55 shares of Sunrun stock for each share of Vivint stock they own at the time the deal closes.

Based on Monday’s closing prices, Vivint shareholders are receiving a premium of 10% and, according to the companies, a 15% premium based on the implied exchange ratio on the three-month weighted average stock prices of the two companies. Vivint made our June list of alternative energy companies with significant upside potential.

The deal is expected to be completed in the fourth quarter of this year. Vivint shareholders will own approximately 36% of the combined company and Sunrun shareholders will own the remaining 64%. Sunrun’s board will be expanded by two members, one of whom is expected to be current Vivint CEO David Bywater.

The boards of both companies have unanimously approved the deal, and Sunrun’s two largest stockholders, Tiger Global (24.74%) and an affiliate of Blackstone (13.45%) have agreed to vote their shares in favor of the deal. Blackstone also owns more than 55% of Vivint’s outstanding shares. Blackstone has agreed to lock up half its acquired Sunrun shares for 60 days and the other half for 120 days following the completion of the deal.

The acquisition offers an interesting counterpoint to Berkshire Hathaway Inc.’s (NYSE: BRK-A) announced $9.7 billion acquisition of “substantially all” of Dominion Energy Inc.’s (NYSE: D) natural gas pipeline business. The purchase price includes about $5.7 billion in debt.

Dominion’s CEO, Thomas Ferrell, noted that over the next 15 years the company plans to invest up to $55 billion in “emissions reduction technologies” and, by 2025, plans to retire more than 4 gigawatts of coal- and oil-fired electricity generation.

Berkshire Hathaway Chair Warren Buffett said the company was “very proud” to add Dominion’s portfolio of natural gas assets to its current energy business. The acquisition doubles Berkshire’s market share in the gas distribution business to roughly 15%.

For Dominion, the deal builds its war chest for a transition to cleaner fuels. Berkshire gains a regulated business with predictable cash flow and profits. Not a small thing given the conglomerate’s failure to meet earnings expectations in three of the past four quarters.

The combined Sunrun expects to expand its offerings to include battery storage and grid services contracts for nonresidential customers. The new company’s larger scale is expected to make it easier to raise capital and provide a lower cost structure that lowers prices to consumers.

In Tuesday’s premarket session, Sunrun stock traded up about 11% to $23.71, above the 52-week range of $7.84 to $23.66. The consensus price target on the stock is $22.70.

Vivint Solar stock traded up nearly 21%, at $12.83 in a 52-week range of $3.17 to $12.99. Its consensus price target is $12.75.