What: Shares of SunEdison Inc. (SUNEQ), TerraForm Power Inc. (TERP), and SolarCity Corp. (SCTY.DL) all popped over 10% on Tuesday, after news surfaced that SunEdison investor David Einhorn is ready to shake up the company.
So what: Einhorn is SunEdison's highest-profile investor and has taken hundreds of millions in losses as the stock has fallen since the Vivint Solar (VSLR) acquisition was announced. Over the weekend, reports surfaced that he was offered a seat on the board of directors, and today Reuters is announcing that Einhorn could seek a sale of a significant chunk of the company's assets or even the company itself.
This is significant for TerraForm Power and SolarCity, because if a sale is completed, TerraForm could break from being SunEdison's captive yieldco and take a more independent direction.
For SolarCity, the sale of assets or SunEdison could mean a number of positive outcomes. It could acquire residential solar assets at a steep discount given the tough financing environment in solar today. It could also potentially buy Vivint Solar, the No. 2 solar installer in the United States. At the very least, SunEdison's pending acquisition of Vivint Solar leaves the combined company in a much weaker position to challenge SolarCity. SunEdison is experiencing high debt costs, and Vivint Solar may now be taking on SunEdison's financing challenges. When they're signing a 20-year contract for solar energy, I don't know why customers would want to take a risk on that company.
Now what: There's still a lot of speculation on what's going to happen to SunEdison, TerraForm, and Vivint Solar, so I wouldn't read too much into a single day's move. There's no easy buyer for SunEdison's assets, especially when you consider the company's nearly $12 billion debt load. I'm not sure any asset sales in today's market would leave much for SunEdison's investors at the end of the day, but Einhorn will try his best to squeeze value out of the company.
The competitive changes for SolarCity may actually be longer-lasting. Vivint Solar was a rapidly growing competitor in 2015 when it announced it was selling to SunEdison, and I don't see how it isn't a weaker competitor in the future. Residential solar companies need stability to ensure value for customers decades down the line, and Vivint Solar has none of that stability today. We'll learn more about the competitive landscape on the fourth-quarter earnings call, and today's reaction was probably overdone, but mark the SunEdison/Vivint Solar fiasco as something that could sway the competitive landscape in residential solar further in SolarCity's favor in the future.