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Solar Services Co Becomes Pure-Play in Manufacturing Spin

Solar panel manufacturer and distributor SunPower Corp. (SPWR) is following through on its 2019-22 business restructuring in this Q3 2020 Spinoff of its manufacturing business, Maxeon Solar Technologies, which will result in the removal of potential continued exposure to domestic tariffs. Additionally, SPWR will continue to focus on its solar panel deployment and distribution of renewable energy, simplifying its overall investment thesis. Read on for more details on this upcoming break-up.

What's Happening?
On November 11, 2019, SunPower Corp. (SPWR) announced the Spinoff of its solar panel manufacturing operations in a move to simplify its structure and reduce the international footprint of the overall company. Once the separation is completed, SPWR (ex-Spin) will be a pure-play domestic solar panel distribution business, and Maxeon Solar Technologies (Spinoff) will comprise of the international solar manufacturing and assembly facilities in Malaysia, the Philippines, France and Mexico.

International Majority Stake Taken...
In April 2011, France’s Total SA (FP FP, one of the seven supermajor oil companies in the world) agreed to take a 60% stake in SPWR for $1.38bn (at a 44% premium). This was a way for Total to claim a place in the renewable energy space with a stake in one of the largest US solar panel makers. This involvement held restrictions, namely limiting Total to a 60% stake until 2013 unless SPWR’s management invited Total to acquire a greater stake or the entire company. After 2013, Total would be allowed to bid for the remainder of SPWR on the condition of its directors’ approval, but this offer was rescinded by the company in 2015. Since then, Total has steadily increased its stake in SPWR ahead of the upcoming Spinoff. The French oil giant has made 19 open market purchases beginning in February 2020 through April.

The Edge View...
SPWR: Aside from the typically cited reasons for performing a separation of businesses, namely “simplifying organizational structures, reducing costs, and increasing efficiency and creating more nimble companies,” SPWR will benefit from no longer having a direct hand in manufacturing the solar panels it markets and deploys. Instead, the company will be solely focused on the distribution network of over 500 dealers it works with to install its solar panels. In addition, SPWR has targeted the solar battery storage market as a growth opportunity. Removing the manufacturing arm allows for that improved focus on becoming a pure-play energy services company.

Maxeon: The Spinoff of Maxeon came about as part of SPWR’s simplification and optimization of its business structure, but it also provided the Spinoff to receive a significant investment from one of SPWR’s partners: Tianjin Zhonghuan Semiconductor Co. (TZS), a Chinese semiconductor manufacturer. TZS will own a 28.848% stake in Maxeon due to a cash injection of $298m, and this intimate partnership will allow Maxeon to access TZS’ cheaper supply chains, thereby decreasing the costs associated with its solar panel manufacturing. TZS itself is currently a majority-state-owned entity, though it has recently been investigating either a partial or entire privatization of that Chinese government stake.

Alongside the $298m investment from TZS, Maxeon is looking to take on an additional $300m in debt following the Spinoff (debt transfer from SPWR is currently undisclosed) to scale its technology in support of its international expansions. Maxeon CEO Jeff Waters recently highlighted each subsequent generation of panels have resulted in a 50% reduction in capex per watt generated, and the Maxeon 5 is expected to continue that trend into the Maxeon 6 currently under development. These cost reductions and efficiency increases will translate into a stronger brand and market penetration, both in the United States and around the world.