It doesn’t take much of an announcement to shake Wall Street investors in their collective boots. In the case of SunEdison, the announcement was related to the company’s decision to purchase another entity at substantial premium.
SunEdison is the biggest solar-energy manufacturing company in the world. The company spent the better part of late 2014 to mid 2013 watching its stock price climb into the stratosphere based on the recommendations some very influential hedge fund managers like billionaire David Einhorn of Greenlight Capital. When word got out that this company was well-structured and well-managed, investors couldn’t buy enough of the stock.
By late July 2015, the walls came crashing down. The cause of the company’s fall from grace can be attributed to an announcement made earlier that month. In a press release, the company announced they were going to purchase another solar energy manufacturing concern named Vivint. While Vivint operated in the same industry, its focus was more directed towards the residential universe while SunEdison operated exclusively in the commercial universe.
Apparently, investors were not interested to hear their favorite company was changing its business operations and paying a 52% premium in the process. Immediately, the selloff started. Despite efforts by SunEdison principals to try to justify their decision, the selling continued picking up steam. By November of 2015, the stock’s price had fallen by almost 80% from the $30 area to $7.
As a result of the company’s meteoric fall, Billionaire investor David of Appaloosa Management (a hedge fund heavily invested in SunEdison) decided to file a lawsuit against SunEdison and its Board of Directors, claiming investors were misled and the company was being mismanaged.
After the lawsuit was filed, SunEdison’s board and management suffered several significant resignations that resulted in the company’s stock price falling to .50 a share by March of this year. With bankruptcy a distinct possibility, the company is desperately looking for a way to stay relevant.
This isn’t just a story about a company’s fall from grace; it’s a story that happens far too often.