NRG Energy Inc. could seek to change or abandon its $5.2 billion deal to acquire Vivint Smart Home Inc., according to some Wall Street analysts, after a jury found the smart home platform company violated "unfair competition" laws by deceiving CPI Security Systems Inc. customers.

The U.S. District Court for the Western District of North Carolina on Feb. 17 ordered Vivint to pay $189 million to CPI Security in punitive and compensatory damages. This stemmed from a 2020 lawsuit alleging Vivint sales representatives "posing as CPI employees or affiliates have bound CPI customers to high-priced, multi-year finance and monitoring contacts with Vivint" that could not be canceled. (Case No. 3:20-cv-00504)

"Vivint believes the verdict is not legally or factually supported and intends to pursue post-judgment remedies and file an appeal and will continue to examine all legal options available to it," the company said in a Form 8-K filing.

Vivint shares fell 5% after the verdict was issued.

"The development may give NRG the option to reprice or walk away from the deal depending on the boundaries of any material adverse change clause in the purchase agreement," Guggenheim Securities analysts wrote Feb. 22.

"It remains unclear if a repricing process would trigger a further delay to the closing process, which we had expected with the completion of the underlying finances by mid-March," they continued. "For example, it remains unclear if any repricing would include a need to wait for any adjustments to the award on appeals."

Analysts at BofA Securities agreed in a Feb. 21 note that the verdict introduces the "potential for revised terms."

NRG said in a Feb. 22 email it is aware of the court decision. "We are continuing to evaluate the decision and our options," the company said, adding that its "acquisition of Vivint is pending and has not yet closed."

The day before the jury made its unanimous decision, NRG President and CEO Mauricio Gutierrez told analysts and investors during a fourth-quarter earnings conference call that there was "very little risk in terms of closing the transaction."

Investors reacted negatively when NRG announced the acquisition at $12 per Vivint share as part of a strategy to prioritize home and consumer services and pivot away from independent power production. NRG shares fell 16% on Dec. 6, 2022, after opening at $35.59, as markets reacted negatively to the deal announcement, but have mostly recovered since then, closing Feb. 22 at $33.15.

Some analysts were also skeptical in December. CreditSights highlighted "the stark difference between Vivint's reported EBITDA and actual cash flows." For the third quarter, Vivint reported $195.5 million of adjusted EBITDA and just under $80 million in cash flow from operations.

Guggenheim is "sympathetic as to why some investors may not want this deal to happen," according to the Feb. 22 note, but Morningstar energy and utilities strategist Travis Miller said he does not think NRG will walk away.

"This has been in the courts for a while, so I expect NRG took into account the possibility of an unfavorable verdict when they did their due diligence," Miller wrote in an email. "I don't think it substantially changes the value proposition of the deal for NRG."

When the deal was announced, NRG's Gutierrez called it an "unparalleled" opportunity and "the path of least resistance to creating value" given the combined company's more predictable earnings. Gutierrez also emphasized the deal would enable NRG to double its customer growth target two years ahead of schedule due to Vivint's subscription-based model and long customer tenure.

Vivint Smart Home provides its nearly 2 million customers with technology, products and services to create a smarter, more efficient and safer home, according to a Dec. 6 news release from NRG. Vivint's vertically integrated business model includes hardware, software, sales, installation, support and professional monitoring.

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