Solar panel installer Vivint Solar Inc (VSLR.N) said on Tuesday it had terminated a deal to be taken over by solar energy company SunEdison Inc SUNE.N after SunEdison failed to close on the planned acquisition.
The cash-and-stock deal, worth $2.2 billion when it was forged last July, had faced criticism from hedge funds and other investors as SunEdison's finances and share price weakened.
SunEdison's stock rose as much as 33 percent to $2.53, while Vivint's fell as much as 22.6 percent to a record low of $4.03.
"SunEdison's borrowing constraints made it impossible for the company to complete the acquisition of Vivint," Raymond James analyst Pavel Molchanov said.
Later on Tuesday, Vivint filed a lawsuit against SunEdison in Delaware Chancery Court, alleging breach of contract.
In court documents, Vivint said SunEdison justified its failure to close the deal by saying it had failed to secure financing. The complaint said, however, that obtaining financing was not a condition to closing the merger agreement.
Vivint is controlled by Blackstone Group LP (BX.N).
SunEdison did not respond to requests for comment. The company has faced criticism for trying to grow too quickly through acquisitions that it could not afford.
SunEdison has a market value of about $650 million, and had long-term debt of $9.77 billion as of Sept. 30.
SunEdison said on March 1 it would delay filing its annual report while an internal investigation was conducted into its financial position.
The deal was set to expire on March 18, Cowen & Co analysts said in a note, adding that SunEdison could be liable for an amount "well above" the breakup fee of $34 million following a court hearing or likely settlement.
Several analysts said both companies will be better off on their own, noting that the extension of U.S. solar investment tax credits beyond 2016 had breathed new life into the industry.
As part of the deal, SunEdison "yieldco" TerraForm Power Inc (TERP.O) had agreed to buy Vivint's rooftop solar portfolio for $799 million, revised down from $922 million under pressure from activist hedge fund Appaloosa Management.
"It's good for TerraForm," Appaloosa Chief Executive David Tepper said of the collapse of the deal. TerraForm's shares were up 5.4 percent at $10.77 in early afternoon trading.
Appaloosa had said the deal put TerraForm shareholders at risk and was a departure from its business model. The hedge fund had been trying to block the deal in court.
(Reporting by Amrutha Gayathri in Bengaluru; editing by Ted Kerr and Andrew Hay)