Anyone who thought the sordid saga of SunEdison Inc (SUNE) was finally over was sorely mistaken. It has just turned to the next chapter, hurling another (not entirely unexpected) curve ball at those following SUNE stock and its incredible John Grisham-esque plot.
The latest twist? The CEO of spinoff yieldcos TerraForm Global Inc (GLBL) and TerraForm Power Inc (TERP) has resigned, effective immediately. A committee will act as CEO until further notice, although it remains to be seen if a new one will be needed.
But why? And perhaps more important to owners of SUNE stock or either of the TerraForm spinoffs … now what?
There are several possible correct answers to the first question. As for the second question, it’s anyone’s guess, but faithful SUNE, TERP and GLBL shareholders may want to remain buckled up for a bumpy ride.
An Inevitable End
Brian Wuebbels, CEO of SunEdison yieldcos TerraForm Global and TerraForm Power, resigned both posts late last night, effective immediately. The circumstances behind his exit were not yet made public, nor was a copy of his official resignation notice made available.
It’s not tough to surmise, however, that he was “asked” to step aside.
Then again, despite the fact that SUNE was down another 8% Thursday on the news, whether Wuebbels voluntarily stepped aside now may be a bit irrelevant. TerraForm Global and TerraForm Power are both neck-deep in the same trouble SunEdison is in, and their very survival (as we know them, anyway) is in question. It was likely Wuebbels would soon be job-hunting regardless.
Still, the abrupt exit waves a red flag when many others are already in the air.
Most plausibly, the pressure on Wuebbels to vacate his position came from SunEdison CEO Ahmad Chatila after an official SEC-submitted notice proverbially threw Chatila and SunEdison under the bus.
On Tuesday, TerraForm Global reported that its annual results report — required by the SEC of all publicly traded companies — would likely be submitted past its due date of March 30. Along with that warning, TerraForm Global warned that its parent/partner SunEdison ran a very real risk of bankruptcy, which could adversely impact both TerraForm companies, which depend on SunEdison to supply up-and-running solar power projects.
It’s a microcosm of several debates that surfaced following the creation of the yieldcos, not the least of which is the alarmingly close but possibly lopsided relationship between TerraForm Power and SunEdison.
As hedge fund manager and major TerraForm Power shareholder David Tepper has argued in the past, SunEdison can unduly pressure TerraForm Power to take on obligations that benefit owners of SUNE but may not be in the best interest of TERP shareholders. The influence Chatila could exert on TerraForm Global was similarly unfair to GLBL owners.
Indeed, on Wednesday, Tepper’s hedge fund, Appaloosa Management, updated its suit against TerraForm Power, demanding the company’s Conflicts Committee members be replaced for failing to fulfill their fiduciary duties.
Tepper doesn’t have a bad case. Any publicly traded company’s obligation is first and foremost to its shareholders, even if that means creating an adversarial relationship with a parent and partner company. (Inasmuch as both TerraForms were formed by SunEdison and their leadership was largely hand-picked by Chatila.)
In that light — and in light of the fact that all three companies are simply failing — some sort of drama to this effect was inevitable.
Bottom Line for SunEdison (and Both TerraForms)
While Wuebbels’ exit makes for good headlines in the midst of a story that has had plenty of them, this may be the one that, in the end, matters the least.
For the time being, a specially formed group of directors will collectively act as a CEO, presumably until a new one is found. The company didn’t indicate it was planning on immediately beginning that search, and the premise of leadership-by-committee isn’t as unusual now as it once sounded.
Whether it’s Wuebbels or a committee or a yet-to-be-named CEO at the helm, though, is largely irrelevant. None of them are going to be able to change the fact that the business model itself — buying solar power production facilities — is simply a bad one, which faces a combination of demand headwinds and ROIs that don’t make sense for the amount of capital required and the length of time that capital is tied up.
Without real solutions to those problems in-hand, no CEO will fare any better than Wuebbels did … particularly as long as Chatila remains in denial about the viability of the business plan in the current environment.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
