What: Shares of SunEdison Inc. (SUNEQ) surged as much as 38% today after Vivint Solar's (VSLR) shareholders approved a SunEdison buyout.
So what: News that Vivint Solar agreed to the buyout isn't a surprise. Shareholders will be able to walk away with $7.89 per share in cash and shares of SunEdison stock. What investors are betting on is that, if a deal can be closed quickly, TerraForm Power (TERP) will follow through on its agreement to buy 523 MW of operating assets for $799 million. Billionaire David Tepper is trying to block that portion of the deal and a judge will rule on his lawsuit soon.
If TerraForm doesn't buy the assets and SunEdison still completes the Vivint Solar deal, it could eventually force the company into bankruptcy. SunEdison simply doesn't have enough cash to acquire Vivint Solar and operate its business at the moment.
Now what: The market may be excited about SunEdison today, but the challenges facing the company haven't gotten any smaller. TerraForm Power's dividend yield is too high to issue new shares to use for growth, making dropdowns difficult. Debt costs are rising and losses continue to pile up. SunEdison hasn't even been able to complete projects on time, something that should be at its core.
SunEdison shares are up today, but we've seen big pops before. The trend for this company is still lower, and until the concern of bankruptcy is long gone, this is a stock investors shouldn't risk betting on.