Two years ago, the solar power company SunEdison was in a crisis.
Its shares had plunged to about $1.50 each, reaching five-year lows, as Chinese solar panels undercut American offerings. Credit rating agencies had downgraded its outlook. And an activist hedge fund, Altai Capital, had emerged with a big stake.
But from that low, SunEdison managed to turn itself around. It is building both solar panels and power-generating projects around the world while its stock hovers near 52-week highs.
Ask SunEdison’s chief executive, Ahmad R. Chatila, what helped spur one of the most surprising turnarounds in recent history, and he will make a surprising concession. It was willingly inviting an executive from Altai, Steve Tesoriere, onto the company’s board, giving him leeway to push for big changes to its strategy and representing investors’ voices in a way the company had not done in the past.
“Having a constructive dialogue with shareholders in the boardroom is something I think everyone would gain something out of,” Mr. Chatila said in an interview.
Activist investors who buy up stakes in companies and push for sometimes radical business changes have gained power and prominence in corporate America in recent years, winning battles and gaining board seats. Daniel S. Loeb of Third Point recently claimed three director spots on the board of the auction house Sotheby’s, while the billionaire Carl C. Icahn has proved a force to be reckoned with at companies like Apple and Dell.
But by inviting one into its board — and letting him take a big role in reshaping its strategy — SunEdison took a step few companies are willing to take.
So far, the bet appears to be working. SunEdison shares closed on Monday at $21.90, valuing the solar power company at about $6 billion. Analysts have praised the company for its new, sophisticated approach to its business, including a bit of financial engineering that drastically cut the costs of developing new solar power assets.
“It’s clear to us that our participation at the board level helped accelerate a number of initiatives that drove the company’s market value and access to capital,” Mr. Tesoriere said in an interview.
Shares in SunEdison have risen 177 percent over the last 12 months, making it one of the best performers in the industry.
Analysts have praised the company’s strategy and success. An analyst at Deutsche Bank, Vishal Shah, wrote in a recent research note that SunEdison appeared poised to grow faster than competitors and at a lower cost.
“I think it’s one of the best in its class,” Mr. Shah said in an interview.
SunEdison’s current success is a far cry from how the company stood in the summer of 2012. Then called MEMC Electronic Materials and known primarily for making silicon wafers for computer chips, the company struggled to support its budding solar-power arm in the industrywide crisis that had taken down Solyndra and other peers.
Two big credit rating agencies had downgraded the company’s debt. Months earlier, it had laid off 1,300 workers, some 20 percent of its employees. By Mr. Chatila’s own admission, the company was in what he called “the danger zone.”
Perhaps most distressingly, Altai had acquired a 7 percent stake and wanted a board seat. Faced with few good options, Mr. Chatila and his management team decided to bring Mr. Tesoriere into their fold, arguing to the board that the drastic change could yield big benefits. At the time, the board had relatively little experience in the solar industry; its expertise was mostly in chemicals and semiconductors.
“At some point, I realized, ‘Wouldn’t it be great if there was someone who understood our strategy and would be an owner?’ ” Mr. Chatila said.
To assuage fears that Mr. Tesoriere would not have a vested interest in the long-term health of the company, the board asked him to commit to serving as a director for five years.
Still, bringing in an outsider, and particularly an activist, was not easy. When he came to his first board meeting in 2012, Mr. Tesoriere, then 34, found himself the youngest man in the room by at least a decade.
“I was pulled aside by a tenured member of the board,” Mr. Tesoriere said. “He didn’t say it directly, but his message appeared to be one of uncertainty about my role and about my motives.”
None of the directors had much to go on at the time. Altai was a relatively young hedge fund with some $400 million in assets, and SunEdison was among its first significant investments.
But by that point, the company’s management realized that the business was facing significant challenges, some of its own making. Mr. Chatila recommended giving Mr. Tesoriere room to reconsider a number of areas, particularly the company’s financial strategy, while letting the hedge fund executive help make the board move faster in its deliberations.
Mr. Tesoriere soon focused on two major initiatives. One was separating the company’s solar power and semiconductor businesses, believing that a sharp division between the two would provide focus and help draw in new investors.
Mr. Chatila initially fought the move, but eventually came around to the idea. (“He turned out to be right,” he later said of Mr. Tesoriere’s argument.) By May 2013, the company had publicly embraced the change, renaming itself SunEdison as it accepted that its main focus would be solar panels and power projects. It completed a spinoff of its semiconductor business in late May of this year.
Mr. Tesoriere also championed a bit of financial engineering that had already been widely used in the energy industry. SunEdison would essentially place its solar projects into a publicly traded company, known in industry argot as a yieldco, in which it would own a big stake. (In late May, SunEdison filed paperwork to take public that new company, known as TerraForm Power, in an initial public offering.)
The new entity can tap the stock markets for money to support SunEdison’s projects at a cost of up to a third less than that of bank loans. And yieldcos pay out most of their earnings as dividends, providing their parent companies and public shareholders with steady payouts. Other renewable energy companies like Pattern Energy and the Spanish company Abengoa had already embraced the model.
Analysts have praised SunEdison’s move, arguing that it will bolster the company’s ability to expand as it pursues projects like a 73-megawatt power plant in Chile.
To Mr. Shah of Deutsche Bank, such substantial change was made possible by the board, which supported management’s radical shift in strategy.
For their part, Mr. Chatila and Mr. Tesoriere praised each other for building up trust, without which the shift would have been impossible. And Mr. Tesoriere, who recently took part in a strategic meeting with senior management executives, now says that he considers himself an integral part of the board.
Last month, Altai sold some of its holdings in SunEdison, taking its stake down to about 4.6 percent. But Mr. Tesoriere said that the move was merely to make sure the solar company did not take up too much of Altai’s assets. And in what he called a show of continued support, he will serve as a director of TerraForm as well as on the SunEdison board.
“I think there’s a long runway for the company,” he said.