MEMC and SunEdison, a Tale of Two Companies

by Paula Mints SunEdison ( SUNE ) has been in the news of late and with a confusing acquisition strategy, interesting financial decisions, layoffs and high debt -- it is beginning to look a lot like MEMC.  This is really a tale of two companies – one a raw material manufacturer and pioneer in silicon wafer technology founded decades ago, the other a pioneering developer in the commercial PV space , and how in becoming one, the combined company took on the personality of the raw material company. In the past MEMC engaged in an aggressive acquisition strategy similar to the one currently followed by SunEdison. MEMC was a semiconductor material manufacturer and its acquisitions and expansions were capital intensive and related to its core business. SunEdison’s acquisitions and expansions are capital intensive and in renewable commercial project development (wind and solar), solar residential leasing, micro-grids in the developing world, YieldCos, and technology licensing (LCPV/BIPV company Solaria’s Zero White Space technology for module assembly). SunEdison’s various acquisitions, expansions and agreements all require different skill sets and strategies. At Solar Power International SunEdison announced a new venture to develop micro-grids in the developing world. The vision of SunEdison’s Frontier Power is energy, connectivity and water, viewed through the lens of an off grid utility where SunEdison owns the assets. The company will own and operate remote mini grids to serve households and SMEs, anchor loads, water pumping and connectivity (the internet). An anchor load could potentially connect a mini grid to the utility grid. The initial focus is on communities in India and on the continent of Africa where it will set tariffs and develop local partnerships and joint ventures pooling debt financing from DFIs (development financing institutions). The strategy is to develop pilot mini grids in the target countries and use the experience to ramp up and scale. Missing in this strategy are specifics as to how the company will make money developing small utilities in areas of the world where affordability has been and remains a significant roadblock. Can a capital intensive strategy that seems to be a combination of commercial microgrid and residential lease in areas where people live on less than $1.00 a day succeed? Memory Lane To understand the company’s current behavior, it is important to consider its past. MEMC’s history predates its PV industry activities and acquisition of SunEdison. Some MEMC pre-and post PV history:  1959: Monsanto Chemical Company founds Monsanto Electronic Materials Company (MEMC) as a merchant manufacturer of 19-mm silicon wafers.  1961: Dynamit Nobel Silicon, (DNS) builds a polysilicon and Czochralski ingot plant in Merano, Italy  1962: MEMC pioneers the chemical mechanical polishing process (CMP). MEMC begins using the recently developed Czochralski (CZ) crystal growing process.  1966: MEMC begins production of 1.5 inch wafers  1970: MEMC’s plant in Kuala Lumpur, Malaysia begins producing 2.25 inch wafers.  1979: MEMC introduces 125 mm wafers  1982: MEMC develops EPI wafers for CMOS applications  1984: MEMC begins producing 200mm wafers and builds a pilot plant to make granular polysilicon  1987: Ethyl Corporation acquires the FBR technology developed under its Jet Propulsion Laboratory contract by General Atomic and Eagle Picher and begins production of granular silicon. MEMC develops feeders to use the finished product and is the primary customer for FBR material. Ethyl later splits into two divisions. One of the divisions is named Albemarle (after one of the Ethyl pioneers). The Albemarle division owns the poly plant.  1989: Hüls AG of Marl, Germany, and a subsidiary of VEBA AG, buys MEMC throughDNS naming the combined company MEMC Materials  1994 Ethyl Corporation spins off its Albemarle division  1995: MEMC acquires granular polysilicon (FBR) facility from Albemarle and renames it MEMC Pasadena  1995: MEMC launches IPO  2000: VEBA AG merges with VIAG AG to become E.ON AG  2000: E.ON AG increases ownership of MEMC from 53.1% to 71.8%  2000: MEMC has a net loss of 68-million Euros on revenues of 944-million Euros  2001: E.ON considers bankruptcy for MEMC  2001: The Texas Pacific Group (TPG) buys the 71.8% of MEMC owned by Germany Utility E.ON, restructures debt and replaces the CEO. At the time of the sale, for the symbolic amount of $1.00, MEMC stated that it only had enough cash to operate through September of that year. Texas Pacific Group agreed to revise the purchase price if MEMC improved its financial performance and to offer it debt financing  2002: Nabeel Gareeb is named CEO of struggling MEMC  2002: TPG converts preferred stock to common stock increasing its ownership of MEMC to 90%  2003: With perfect timing – just as growth in the PV industry begins accelerating, SunEdison is founded as a commercial PV developer of PPA projects  2004: MEMC enters a licensing agreement with Silicon Genesis Corp (SiGen) to manufacture wafers using SiGen’s layer transfer technology  2004: PV industry demand begins to surge as crystalline supplies become constrained. Prices for wafers at >$3.00/Wp  2006: MEMC agrees to supply Suntech Power ( STPFQ ) with solar grade silicon wafers for ten years and receives a warrant to purchase a 4.9% stake in Suntech  2006: Polysilicon prices spike with spot prices at >$400/kilogram  2008: Nabeel Gareeb resigns as MEMC CEO  2009: BP Solar sues MEMC for ~$140-million for failing to supply the company with polysilicon in 2006 and 2007 under a three year supply agreement, winning $8.8-million  2009: MEMC acquires SunEdison  2010: MEMC acquires crystal growth technology company Solaicx for $66-million  2011: MEMC idles its polysilicon manufacturing facility in Merano, Italy, reduces capacity in Oregon and scales back its facility in Malaysia as well as laying off ~1,400 employees globally  2011: Enters a joint venture with Samsung Fine Chemicals and MEMC’s affiliate, MEMC Singapore, to produce high purity polysilicon in Ulsan, Korea using the FBR process.  2011: BP exits PV manufacturing   Suntech files for bankruptcy protection  2013: MEMC changes company name to SunEdison  2014: SunEdison spins off its semiconductor business as SunEdison Semiconductor  2014: SunEdison launches Yieldco TerraForm Power ( TERP )  2014: SunEdison announces Zero White Space module technology, purported to increase electricity output by 15% by eliminating space between cells  2015: SunEdison sells shares of SunEdison Semiconductor to help finance acquisition of First Wind, eventually would sell all shares in SunEdison Semiconductor  2015: SunEdison goes on a shopping spree buying First Wind, Globeleq Mesoamerica Energy, Continuum Wind Energy, Vivint and Solar Grid Storage  2015: SunEdison announces layoffs of 15% of 7260 employees  2015 SunEdison licenses LCPV/BIPV company Solaria’s Zero White Space technology that essentially involves slicing cells into thin strips and assembling the strips into a modules without spaces in-between the slices Back to the present When MEMC changed its name to SunEdison it did not take on the culture and personality of the original SunEdison. MEMC essentially bought itself a fresh start through the vehicle of a name change. SunEdison is highly leveraged, adding concern to its recent capital intensive acquisition strategy. The company’s recent quarterly filing showed a net loss and negative operating cash flow. The company’s current ratio (an indication of its ability to pay short term debt) was below one – a poor result. The acid test ratio for the company was well below one, indicating that SunEdison does not have sufficient liquid assets to pay its current liabilities. On October 30 its stock price, a measure of investor confidence, closed at $7.30, down significantly from the July 20, 2015 price of $31.66. The company’s YieldCo, TerraForm (again, launched for the purpose of funding future SunEdison project development) closed at $18.25 a share on October 30, down from a high of $42.15 a share on April 22, 2015. Paula Mints is founder of SPV Market Research , a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on T witter @PaulaMints1 and read her blog here . This article was originally published in the October 31 issue of  SolarFlare , a bimonthly executive report on the solar industry, and is republished with permission.