SunEdison-Renova Deal Cancellation Could Be Great For Investors

• TerraForm Power Inc TERP, a subsidiary of Sunedison Inc SUNE, was in negotiations to take control of generation assets from Renova Energia SA, a Brazilian renewable energy company. The acquisition would take the form of a share swap valued at 13.4 billion Reais ($3.45 billion).
• However, on Tuesday, the companies announced that the deal was being called off due to adverse market conditions in Brazil, a Reuters article informed.
• Shares of Sunedison rose almost 9 percent on the news; shares of TerraForm gained more than 41 percent.

On Tuesday, TerraForm announced it would be canceling an agreement to take control of a few energy generation projects in Brazil, which would account for 2,200 megawatts of generation capacity. The companies involved explained that the deal had been called off on the back of adverse local market conditions. “Companies building new power generation capacity in Brazil are suffering from high financing costs at private banks and reduced availability of lower-cost government-backed credit,” a Reuters article expounded.

The note added that, while this phase (phase 2) of the TerraForm-Renova partnership would not be completed, the previous phase, consisting of the sale of some small hydropower plants and wind projects, was still happening.

Following the news, Credit Suisse analysts Patrick Jobin, Maheep Mandloi and Jennifer Ky shared some insights. According to a report issued Tuesday, the firm believes the cancellation of the deal is a positive for SunEdison. “The deal has been a significant overhang on the stock as it would represent massive dilution ($250m in stock at today's share price),” they explicated.

The experts believe, “per disclosure, this also extinguishes SUNE's liability to acquire 2.5 GW of Renova's backlog projects (total consideration of $4b for deliveries in 2017-2020). Per the deal agreement, any party could cancel the deal without penalty after Nov 30, 2015, if no agreement was reached,” they added.

Credit Suisse maintains an Outperform rating and $25 price target on the stock.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.