Investors in Vivint Solar (NYSE:VSLR) soon will be investors in Sunrun (NASDAQ:RUN) after a stock-only merger is expected to close in this month. A result of the merger will be that holders of Vivint Solar stock will magically become Sunrun shareholders.
The merger was announced in July and is on a rapid track.
On Sept. 11, the two companies announced that the proposed deal got a pat on the back from the U.S. Justice Department, which approved the “early termination of the waiting period” normally required.
Observers seemed generally supportive of the proposed merger. The two companies also provide similar services to customers seeking solar-powered systems. In addition to selling and installing specialized solar equipment, both firms earn revenue by leasing the systems. This approach makes the systems more accessible to customers and providing regular income for the companies’ bank accounts.
A Look at Vivint Solar Stock
Vivint is a fairly young small-cap company based in Levi, Utah, that was founded in October 2011. The company designs and installs photovoltaic systems for the residential market in 23 states.
Vivint has a market capitalization about $5.5 billion. Shares of VSLR stock have been volatile. The stock’s 52-week low is $3.17 and, during the same period, it has climbed as high as $45.05 per share. VSLR stock has been hovering near its highs in recent days, with shares currently trading around $43. Vivint stock plunged during the sell-off induced by the novel coronavirus and has slowly clawed its way to around $10 per share when the merger with Sunrun was announced.
Vivint reported its second-quarter earnings in August. In a statement, the company said it posted $106.4 million in revenue, an 17% increase from $90.8 million during the same period one year ago. Nearly $82 million of that revenue came from “customer agreements and incentives.” The reminder was from “solar energy system and product sales.”
The company also said it lost $26.1 million during the quarter. This was a decrease from $36.9 million lost in Q2 2019. The loss came to about 68 cents per share, the statement said, while the 2019 Q2 loss was 73 cents per share.
The Deal With Sunrun
On July 6, Vivint and Sunrun jointly announced their merger plan. The deal has “a combined enterprise value” of $9.2 billion based on prices of the companies’ stock that day. Sunrun is acquiring Vivint in an all-stock transaction. Under the terms announced, 0.55 shares of RUN will be exchanged for each share of VSLR stock.
The companies also said that proposed stock exchange rate was a 10% premium for VSLR stock.
Vivint and Sunrun share common goals in the emerging solar-energy industry, Vivint CEO David Bywater said.
“Joining forces with Sunrun will allow us to reach a broader set of customers and accelerate the pace of clean energy adoption and grid modernization. We believe this transaction will create value for our customers, our shareholders and our partners.”
The merged company will have a customer base of about 500,000, the statement said.
The Bottom Line
Vivint Solar is a 9-year-old solar energy firm based in Utah that has designed and installed solar panels and storage systems for homes in more than two dozen states. The company is about to be acquired by San Francisco-based Sunrun that has been in a similar business since 2007.
Shares of both companies have climbed since the deal was announced in July.
The lure of taking profit surely has been tantalizing anyone holding Vivint Solar stock, especially if those shares were purchased when the stock was priced at a fourth of the current level. Holding on for the integration of the two companies makes sense if you trust Sunrun’s ability to smoothly merge the firms. I must say, though, investors bought VSLR for a reason and they may not hang around.
There is plenty of room for solar companies to grow. Green energy is gaining popularity and there is no reason to expect that will diminish. However, investors would be better served by a low-cost exchange-traded fund focused on the segment. This will spread the risk and increase your chance of profits.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.