Sunrun Inc. (RUN), a provider for solar, battery storage and energy services will acquire rival Vivint Solar (VSLR), for about $1.46 billion in an all-stock deal.
As part of the transaction, each share of Vivint Solar common stock will be exchanged for 0.55 shares of Sunrun common stock, giving the deal a combined enterprise value of $9.2 billion based on Sunrun’s closing price of $21.34 per share on July 6. The exchange ratio implies a 10% premium for Vivint Solar shares and and a 15% premium to the exchange ratio implied by the three-month volume weighted average price of Vivint Solar and Sunrun shares, the companies said in a joint statement.
Following the deal, Vivint Solar shareholders will own about 36% and Sunrun stockholders will be left with 64% of the fully diluted shares of the combined company.
“Vivint Solar adds an important and high-quality sales channel that enables our combined company to reach more households and raise awareness about the benefits of home solar and batteries,” said Sunrun’s CEO Lynn Jurich. “This transaction will increase our scale and grow our energy services network to help replace centralized, polluting power plants and accelerate the transition to a 100% clean energy future.”
In addition, the deal is expected to lead to an estimated $90 million in annual cost savings from synergies.
The customer base of the two companies of about 500,000 will create a global owner of solar assets, with over 3 gigawatts of solar assets on the balance sheet. Looking ahead, the combined company sees “massive” growth in providing solar power services for the residential market as penetration has reached only 3% in the U.S.
The acquisition is expected to be completed during the fourth quarter of 2020, subject to approval by Vivint Solar and Sunrun stockholders, regulatory approvals and other customary closing conditions.
Shares in Sunrun rose 6.7% to $21.34, while Vivint advanced 5.6% to $10.63 at the close on Monday.
JMP Securities analyst Joseph Osha yesterday raised Sunrun’s price target to $31 (45% upside potential) from $19 and maintained a Buy rating on the stock, saying his “reassessment” of the company’s growth prospects is based on strong storage interest for this summer and fall, particularly in markets where power prices are high and self-consumption is encouraged.
Overall Osha’s bullish outlook is shared with the rest of the Street. The Strong Buy analyst consensus shows 7 Buys versus 1 Hold. In light of the stock’s 54% rally so far this year, the $23.13 average price target implies a modest 8.4% upside potential over the coming year. (See Sunrun stock analysis on TipRanks)
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