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It's About Time David Einhorn Took Action With SunEdison - What To Expect

If Einhorn receives a board seat and implements much needed changes to the company, there is a lot of upside potential for SunEdison and its Yieldcos.

The acceptance of a Board seat would associate Einhorn's name further with SunEdison and would likely deepen his commitment towards realizing the value of his equity stake.

It's likely that other shareholders can benefit alongside Einhorn if he decides to partake in activism for SunEdison.

In my previous article, I questioned why David Einhorn failed to take any action up until now for the mess SunEdison (NYSE:SUNE) has gotten itself into through their reckless treatment of the capital markets. It's entirely understandable if he did not foresee the consequences of SunEdison's Vivint (NYSE:VSLR) acquisition, but it greatly confused me as why he did not take any action after the fact.

The fundamentals of the market had greatly shifted after the collapse in oil prices and investors are no longer as hungry for yields as they were prior to the collapse, especially in the energy sector. Without the support of SunEdison's Yieldcos; Terraform Power (NASDAQ:TERP) and Terraform Global (NASDAQ:GLBL), it is contentious as to whether or not 3rd party sales can sustain the margins of SunEdison's development business (Devco). Due to SunEdison's high leverage and the capital intensive nature of the Devco business, a contentious margin can potentially be fatal to SunEdison's equity. Management has given projections for their future Devco margins, but to depend on management's projections may prove to be detrimental to an investor's financial health.

What happens from here?

Ahmad Chatila hails from the semiconductor industry and behaves with a heavy bias towards the motto "tomorrow will always be a better day". Unfortunately, this type of behavior creates losses if a sustainable margin is not attainable and the party that ends up paying for this unwarranted optimism will be equity holders as seen recently with the heavy dilution. It is not a foregone conclusion that management will not continue to dilute equity holders if they continue to go down...


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