Roll-ups depend for their success on continuing to acquire companies. When they can't any longer, the music stops and the game ends, usually in tears.
SunEdison started as a money-losing maker of solar wafers, a critical component in photovoltaic cells, under the name of MEMC. That acronym was originally short for Monsanto Electronic Materials Company - yes, that Monsanto (NYSE:MON). Its history dates all the way back to 1959. The company went through several hands over the succeeding decade, including the German utility E.ON (OTCQX:EONGY), and Texas Pacific Corp., usually losing money.
MEMC bought a company named SunEdison as a way out of this commodity wafer business in 2009 and took its name for the whole in 2013. As SunEdison, it then went on an acquisition binge aimed at moving "downstream" toward project development.
During 2015 alone, SUNE made five acquisitions, mainly for debt. But just as with the old MEMC, it failed to turn a net profit, and this is catching up with it. The debt overhang is destroying it.
A lot of this history is a mystery to Wall Street, and thus to investors, but it has been closely covered by vertical market experts like Greentech Media. There is no surprise there that $10 billion in market value may be going up in smoke, following Vivint's (NYSE:VSLR) decision to back away from its merger with the company. Vivint itself had only gone public in 2014, having made some inroads in the northeast residential solar market. But its results, which looked good for a few quarters, cratered once the acquisition was announced. Blackstone (NYSE:BX) is a majority shareholder in Vivint.
Hedge fund handprints, in fact, are all over the SunEdison story. They include David Einhorn's Greenlight Capital and David Tepper, whose fund held 10% of TerraForm (NASDAQ:TERP), SunEdison's yieldco, which bought finished projects and was designed to distribute profits. When it comes to buying new technology, I really prefer to go with guys who understand the business, not just those who know how to move money.
The fact is that SunEdison's story should have nothing to do with the renewable energy business generally. The company went too fast, with too much debt, and its managers were too smart for their own good. The stink of this debt mess has impacted the stock of some players, like SunPower (NASDAQ:SPWR) and SolarCity (NASDAQ:SCTY), which also have big expansion plans in the face of low energy prices. The contagion has not yet hit companies like Canadian Solar (NASDAQ:CSIQ) and First Solar (NASDAQ:FSLR) that have stuck to their knitting and focused on maintaining profitable operations.
Just as has been true of computing companies since the 1950s, you really want to go with the leaders in the renewable energy space, not the smart money boys trying to buy their way in. First Solar, which I've pounded the table for here before, continues to chug along. When new technology emerges, they will have the capital structure to buy in.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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