SunEdison's share price surged today on news that the company would spin off its semiconductor business from its PV development business. Shares peaked on the New York Stock Exchange at $8.34 each.
The company, formerly known as MEMC Electronic Materials, announced that its board of directors unanimously approved an initial public offering of its semiconductor business to create SunEdison Semiconductor.
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SunEdison plans to sell an as-yet undecided minority ownership interest in the semiconductor business to the public. SunEdison said it will use proceeds to fund the solar business, repay debt and for general corporate purposes.
Ahmad Chatila, the chief executive of SunEdison, said: “Today's announcement represents the next evolution in our strategic plan to better position both our solar and semiconductor businesses for sustainable, long-term success.
“This new structure will allow each independent company to pursue its shareholder value generating strategies, focus on key markets and customers, optimise capital structures, and enhance access to growth capital for each company in the years ahead.”
Last year, MEMC Electronic Materials, which provides silicon wafers to the semiconductor and solar industries, acquired solar developer Sun Edison in a deal worth US$200 million in cash and 30% in MEMC stock. The company changed its name to SunEdison in May.
Earlier this month, SunEdison reported a net loss of $102.9 million compared with $77.2 million in the same quarter last year. The company, based in Belmont, California, said that earnings were lower than expected because the “semiconductor wafer market continues to be in an extended downturn.” It lowered its full-year revenue forecast range for the semiconductor materials business by $20 million to between $940 million and $980 million.
Jenny Chase, lead solar analyst at Bloomberg New Energy Finance, said that the spinoff was not necessarily driven by poor performance of the company's wafer division.
“It certainly appears that the market has responded positively to this announcement,” she said. “But it's a longer term strategy. They've got these two totally different departments – one which focuses on heavy chemicals and another which focuses on getting land rights and negotiating deals to build the projects. It probably makes more sense for them to be different companies managed by two different groups of people. Investors can then choose which part of the value chain they want to be in.”
REC Solar in Norway is also attempting a similar division by splitting into upstream and downstream companies relocated from Norway to the US and Singapore, she noted.
“This is some of the first evidence of deconsolidation in the solar industry. The last six years or so we've had a consolidation in which companies insisted that it was great to have all parts of the value chain. They are now starting to realise that actually it's more helpful for the companies and investors to take one part of the value chain to concentrate on. We could see Sunpower and First Solar follow suit.”
The semiconductor part of the value chain is struggling because prices for silicon are very low, sometimes below cost, she added. BNEF's forecast for silicon is to increase from today's prices of $17/kg to above $20/kg before the end of the year.
SunEdison expects to file a registration statement with the Securities and Exchange Commission in the third quarter of 2013, with the initial public offering scheduled by early 2014, subject to market conditions.