As promised, Vivint Solar (VLSR) followed up on its announced plans to seek "all legal remedies available" for SunEdison's (SUNE) "willfull breach" of the planned merger between the two companies but the outcome for SunEdison is still uncertain, according to analysts.
"It is tempting to celebrate this development because it relieves SUNE of taking on additional debt and dilutive equity, but we think failure to consummate the deal and delayed filing of the 10K are symptomatic of SUNE's weak liquidity position, and internal disarray," Paul Coster of J.P. Morgan Securities wrote in a report on Tuesday.
In July, Missouri-based SunEdison announced plans to acquire the Utah-based company in a deal that was initially valued at $2.2 billion. The news was not well-received by SunEdison shareholders as the company have fallen 93% since the deal was announced. In December, after SunEdison admitted that it would be not be able to do the deal as agreed, the amount of the transaction was revised downward to $1.4 billion, according to a complaint filed on Tuesday with the Delaware Court of Chancery
"Almost immediately after the deal was inked, however, with its stock price starting to fall, SunEdison began exhibiting classic signs of buyer's remorse," Vivint Solar said in the complaint.
As a result of the failed deal, SunEdison could have to pay Vivint a settlement that is "well above" the $34 million breakup fee, Jeffrey Osborne of Cowen & Co. wrote in a note on Tuesday. Even so, Osborne sees the end of the deal as a "net positive for the SUNE ecosystem," and he maintains an Outperform rating on the company with a $10 price target.
Analysts weren't the only ones that were wary of the proposed merger. Shareholders of SunEdison's yieldco, TerraForm Power (TERP), were also not pleased with the original deal and its revision, as the yieldco was required to finance part of the acquisition and acquire Vivint's portfolio of projects. In January, David Tepper's Appaloosa Management, which has a 9.5% in TerraForm Power, sued SunEdison to block the deal.
Shares of SunEdison rallied on Tuesday in response to the news, however shares were down nearly 4% at noon on Wednesday, suggesting investors aren't sure of what's next for the company. Tepper told Real Money on Tuesday that the abandoned merger was a "good result" for TerraForm Power and while analysts generally seemed to agree that the end of the deal was positive, their views of SunEdison differed.
According to a Bloomberg survey of analysts, four have Buy ratings on the company, eight have Hold ratings, and three have Sell ratings.
Among the bulls, FBR Capital maintained its Outperform rating on SunEdison but lowered its price target to $7 from $10.50 on Wednesday. Carter Driscoll of FBR Capital said he believes that SunEdison will save $188 million from the ended deal, but he lowered his discounted cash flow estimates for the company's solar and wind assets by 10%.
Meanwhile analysts at Credit Suisse, which maintains a Neutral rating and $3 price target on SunEdison, sees a mixed bag in the end of the deal and SunEdison's broader troubles. The deal break up is positive but it leaves a legal battle "overhang with an unknown magnitude," according to a note Patrick Jobin of Credit Suisse wrote on Tuesday. Additionally, Jobin also addressed that fact that SunEdison is subject to an internal investigation based on allegations former executives made about how the company represented its financial position. That investigation, is part of the reason why the company has delayed filing its 10-K.
Finally, J.P. Morgan Securities downgraded SunEdison to Underweight from Neutral on Tuesday, citing the termination of the deal and "real possibility of a credit event" if the firm is unable to generate strong cash flows. That may be difficult as an analyst team lead by Paul Coster noted that several of SunEdison's projects were cancelled in February.
"Failure to consummate the Vivint acquisition originates in the firm's weak liquidity situation, in our view, and is a reason to be incrementally cautious regarding SUNE's near-term prospects," Coster wrote.