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Due Diligence Report: More Trouble for SunEdison with the TerraForm Deal
Summary:
SunEdison, Inc. (SunEdison), incorporated on October 1, 1984, is a developer and seller of photovoltaic energy solutions, an owner and operator of clean power generation assets, and a developer and manufacturer of silicon wafers. The Company operates in three segments: Solar Energy, TerraForm Power and Semiconductor Materials through SunEdison Semiconductor Ltd. (SSL). The Company owns directly or indirectly, wind and solar operating and development projects representing 1.6 Gigawatts (GW) of pipeline and backlog and development opportunities representing more than 6.4 GW of wind and solar projects.
The Company’s Solar Energy segment provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance portions of the downstream solar market for the Company’s customers. The Company’s Solar Energy segment also owns and operates solar power plants and manufactures polysilicon and silicon wafers and subcontracts the assembly of solar modules to support the Company’s downstream solar business, as well as for sale to external customers as market conditions dictate. As of December 31, 2014, the Company interconnected over 974 solar power systems representing 2.35 GW of solar energy generating capacity. As of December 31, 2014, the Company had 467 megawatts of projects under construction and 5.1 GW in pipeline. In support of the Company’s downstream solar business, the Company’s Solar Energy segment manufactures polysilicon, silicon wafers and solar modules. Additionally, the Company’s Solar Energy segment sells solar modules to third parties.
The Company develops and constructs solar power generation assets and retains the assets on the balance sheet. These assets produce electricity that is sold to the energy consumer or utility generator. The Company’s solar energy customers fall into three categories: commercial customers, which include national retail chains and real estate property management firms; federal, state and municipal Governments, and utilities. The Company’s international business operations focus primarily in certain areas in Europe, Canada, Latin America, South Africa and India. The Company provides software applications to provide customers’ control over their assets, including software to monitor, report, and diagnose performance. The Company’s also provides data analytics and insights to understand key drivers of assets performance and offers advisory services to enhance assets performance.
The Company’s TerraForm Power segment owns and operates clean power generation assets, both developed by the Solar Energy segment and acquired through third party acquisitions that sell electricity through long-term power purchase agreements to utility, commercial, and residential customers. TerraForm Power segment focuses on the solar and wind energy segments.
The Company’s Semiconductor Materials segment includes the manufacture and sale of silicon wafers to the semiconductor industry. SSL offers wafers with a range of features, which vary in size, surface features, composition, purity levels, crystal properties and electrical properties. SSL’s monocrystalline wafers for use in semiconductor applications range in size from 100 millimeter to 300 millimeter and are round in shape for semiconductor customers. These wafers are used as the starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory, logic and power devices. The Company’s monocrystalline wafers for semiconductor applications include four general categories of wafers: prime, epitaxial (EPI), test/monitor and silicon-on-insulator (SOI) wafers.
SSL’s polished wafers are used in a range of applications, including memory, analog, radio frequency (RF) devices, digital signal processors (DSPs) and power devices. SSL’s polished wafer is a polished, refined wafer with a flat surface. SSL’s OPTIA wafer is a crystalline structure based on its technologies and processes, including MDZ. SSL’s MDZ product feature draws impurities away from the surface of the wafer during device processing. The Company’s annealed wafer is a polished wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment. SSL also supply’s test/monitor wafers to its customers for their use in testing semiconductor fabrication lines and processes.
SSL’s EPI wafers are used in mobile device and cloud infrastructure applications. SSL’s wafers consist of a thin silicon layer grown on the polished surface of the wafer. SSL designed its AEGIS product for certain specialized applications requiring high resistivity EPI wafers. The AEGIS wafer includes a thin epitaxial layer. SSL’s SOI wafers have three layers: a thin surface layer of silicon where the transistors are formed, an underlying layer of insulating material and a support or handle bulk semiconductor wafer. SSL sells its products to semiconductor manufacturers, including integrated device manufacturers and semiconductor foundries and to companies that specialize in wafer customization. SSL services its customers through its 13 global locations, including manufacturing plants and sales and services offices.
SunEdison, Inc. has a current market capitalization of $514.94 M with 316.94 M outstanding shares. Its daily average volume traded is 30.65 M shares.
Key Indicators (Q3 2015) Performance (6 months)
| Shares Outstanding | 316.94 M |
| Revenue | 476.0 M |
| Gross Profit | 111.0 M |
| Net Income(Basic/Diluted) | -284.0 M |
| Cash and Short-term Inv | 2393.0 M |
| Total Debt | 11672.0 M |
Recent News and Analysis:
The latest from SunEdison includes the company saying it has defeated an injunction filed by David Tepper’s Appaloosa Management on its TerraForm deal. The company on Thursday said it was “gratified” after the Court of Chancery in Delaware denied Appaloosa’s injunction to prevent SunEdison’s yield co, TerraForm Power Inc., from buying some of Vivint Solar Inc.’s assets. TerraForm is to acquire Vivint’s residential solar rooftop portfolio for $799 million after SunEdison completes the Vivint transaction. Appaloosa has repeatedly said TerraForm’s acquisition of Vivint’s assets, which had an initial purchase price of $922 million, was not in the interest of the yield co.’s shareholders, mainly because it would alter the company’s business model and force it to take on debt of $960 million.
While investors are celebrating the deal, they weren’t liking it when it was announced back in July. In the chart above, you can see that while shares of SunEdison are down 92% over the last year, much of that drop occurred just as the Vivint deal was announced in July. At the time, investors felt SunEdison was biting off more than it could chew and that Vivint’s portfolio of residential projects was of inferior credit quality compared to SunEdison’s more commercial projects.
To be sure, terms of the Vivint deal were amended in December. Among the changes to the original deal, SunEdison was able to lower the cash amount it was paying to Vivint by $2 a share. While the economics were better, Appaloosa Management, which had a stake in SunEdison’s yieldco, TerraForm Power (TERP), took issue with aspects of the proposed deal that would require TerraForm Power to purchase Vivint’s projects from SunEdison. In January, Appaloosa Management filed a complaint against SunEdison alleging it “breached its fiduciary duties to TERP and its minority stockholders.” Shares of TerraForm Power closed up a more modest 2% and are down 5% in after-hours trading.
Conclusions:
Analysts on the street are not overly optimistic on SUNE. “This should clear the way for SUNE to acquire VSLR and potentially place the operating assets at TERP instead of holding the assets on their balance sheet (which is very constrained),” Patrick Jobin, an analyst at Credit Suisse, wrote in a note after the announcement. Credit Suisse has a Neutral rating on the company and a price target of $3.
Sources:
- http://stockcharts.com/h-sc/ui?s=SUNE&p=D&b=5&g=0&id=p77403776877
- https://www.google.ca/finance?q=NYSE%3ASUNE&fstype=ii&hl=en&gl=ca&ei=haHPVvm5M9PCjAGhr5XIDg
- http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=SUNE.K
- http://finance.yahoo.com/q?s=SUNE&ql=0
- http://finance.yahoo.com/news/sunedison-defeats-appaloosas-injunction-terraform-001945853.html
- http://realmoney.thestreet.com/articles/02/25/2016/denial-injunction-lifts-sunedison-shares?puc=yahoo&cm_ven=YAHOO
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