Ethanol M&A (GPRE)

Despite the known problems of ethanol, ethanol lives!  After the closing bell on Tuesday came word that Green Plains Renewable Energy, Inc. (NASDAQ: GPRE) has entered into a definitive agreement to acquire Global Ethanol, LLC.  Green Plains estimates the total value of the transaction at approximately $169.2 million, which includes about $147.6 million for the ethanol production facilities and the balance in working capital.

Global Ethanol owns two operating ethanol plants located in Lakota, IA and Riga, MI.  The combined production capacity for both is about 157 million gallons per year.

Green Plains claims that this will boost its capacity by 31% to approximately 657 million gallons per year.  Green Plains also believes that it will market and distribute more than one billion gallons of ethanol production per year after the transaction closes.

Upon closing of the merger, the outstanding units of Global will be exchanged for $20 million in cash, as well as 4,386,027 shares of restricted common stock of Green Plains and warrants to purchase 700,000 shares of restricted common stock of Green Plains.  The total listed value of the transaction also includes the assumption of some $98.7 million in Global Ethanol’s outstanding debt.

The warrants will not be transferable, except in certain limited circumstances, and will be exercisable for a period of three years from the closing date at a price of $14.00.  While the warrants require upside to have any real value, the upside expectations are not off the chart.

That v$14.00 warrant strike price compares to a close on Tuesday of $11.69 after a 7.4% gain on the day.  The 52-week trading range is also $6.50 to $17.97.

JON C. OGG