What: Shares of residential solar installer Vivint Solar (NYSE:VSLR) have plunged 15% since the company announced it was being acquired by SunEdison (NASDAQOTH:SUNEQ) on July 20, 2015. The reason for the plunge shows why a buyout is sometimes a time for investors to take money off the table.
So what: Vivint Solar's recent move hasn't been the fault of Vivint Solar itself -- it's the fault of SunEdison, which has fallen off a cliff since the buyout.
In part, the stock is down because of a disappointing earnings report and a ballooning debt load. SunEdison has been trying to acquire assets as quickly as possible to gain scale, but it's done so primarily with debt, and doesn't have the profits to satisfy investors at the moment.
Now what: This is one reason why it's often wise to take some cash off the table when a buyout offer is made, especially when it's made in cash. Vivint Solar hasn't been hit as hard as SunEdison recently, as its buyout was for $9.89 in cash, $3.31 per share in SunEdison stock, and $3.30 per share in SunEdison convertible notes. If the buyout goes through the downside will be less than SunEdison's plunge, but SunEdison's stock drop lowers Vivint Solar's buyout price. Something to consider next time one of your companies is bought out at a big premium.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.