Having an activist investor involved in a stock you own can be a confusing time for investors. Most activist investors have their own short-term gains in mind instead of the long-term value of the company they're buying, which is contrary to the Foolish way of thinking about buying long-term businesses instead of trading them.
But activists can also do more to unlock hidden value in a company than the average retail investor can. In the case of SunEdison (SUNE +0.00%), that appears to be exactly what Steve Tesoriere at Altai Capital has done with the solar developer, and it's turned out to be a win-win for everyone.
SunEdison project built for the Air Force. Image source: SunEdison.
A company in need
2012 was a bad year for the solar industry in general, but SunEdison -- or MEMC Electronics as it was known at the time -- was in especially rough shape. The legacy business of manufacturing silicon wafers for the semiconductor industry was struggling and out of place with the solar development business that had been acquired in 2009.
When Altai Capital acquired a 7% stake in the company and asked for a spot on the board of directors it was challenging management to rethink the way it looked at its business. But Altai Capital not only timed its investment well, they came with a strategy that would work in solar.
Changing the course of SunEdison
The two major changes Altai Capital and SunEdison made were spinning off the semiconductor business, which is now SunEdison Semiconductor (NASDAQ: SEMI), and focusing the remaining company on developing solar projects, which is where the value creation currently is in solar.
SunEdison project in Chile, part of a larger international expansion. Image source: SunEdison.
To augment the development business, SunEdison also launched one of the industry's first yieldcos, TerraForm Power (TERP +0.00%), an asset ownership model that pays investors a regular dividend. SunEdison can then push projects down to the yieldco, generating cash while maintaining some economic interest in the projects.
The yieldco structure was so successful that it just filed an S-1, or pre-IPO documentation, for an emerging markets IPO that would contain international projects.
The separation of SunEdison into three (and potentially four) businesses allowed each to focus on what it does best and brought in new investors who may not have been interested in owning the combined business. That's the value Altai Capital brought to SunEdison.
Staying involved in SunEdison's future
Altai Capital's Steve Tesoriere remains a board member of SunEdison and TerraForm Power, although Altai Capital has reduced its stake in the former to 4.6% of outstanding shares. But it appears that the fund will be actively involved in the company at least for the next few years, a fairly long time frame for hedge funds these days.
Thus far, activism has paid off for shareholders of SunEdison. This example highlights the good that can come from a shareholder commanding a seat at the table with decision makers and pushing for change. That's not always the case when activists start meddling with companies, but sometimes it's profitable when they can make a positive difference.
