Pacific Ethanol ends year by more than doubling capacity with Midwest deal

Source: Mark Anderson, Staff Writer- Sacramento Business Journal • Posted: Monday, January 5, 2015

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Paul Schraub

​With the acquisition of another ethanol producer, Sacramento-based Pacific Ethanol will become the fifth largest producer of the alternative fuel at 515 million gallons. This is the Pacific Ethanol plant in Stockton.

The stock-for-stock merger agreementcalls for Pacific Ethanol to buy the outstanding shares of Aventine.

Aventine (OTC: AVRW) has a market capitalization of $2.1 million, and it carries $135 million in term loan debt.

Aventine has two ethanol plants in Nebraska and two in Illinois with a total capacity of 315 million gallons of ethanol annually. Combined with Pacific Ethanol’s capacity of 200 million gallons annually, the merger will makes Pacific Ethanol the fifth largest producer of ethanol in the country at 515 million gallons. Pacific Ethanol also markets and sells for other producers, so the merger will bring Pacific Ethanol’s marketing business to more than 800 million gallons annually.

The acquisition is expected to close in the second quarter of 2015, pending regulatory and shareholder approval from both companies.

The purchase will allow Pacific Ethanol to diversify its markets, which are currently in the West. Aventine has access markets in the Midwest and East, according to CEO Neil Koehler.

“It will complement our existing business as we balance assets across new regional markets, expand our footprint for the production and marketing of low-carbon renewable fuels, diversify our technology and increase our mix of co-products,” Koehler said in a news release.

Pacific Ethanol (NASDAQ: PEIX) will issue 17.75 million shares of common stock in return for shares of Aventine.

Pekin, Ill-based Aventine will add two people to Pacific Ethanol’s board of directors and Aventine will operate as a subsidiary of Pacific Ethanol.

The ethanol business can be highly volatile because it depends on variable commodities, usually corn, as the input, and its output is fuel ethanol, also a commodity whose price can and does change daily.

Aventine has been in turnaround mode since it ran into difficulties in 2010 when corn prices soared and ethanol sales flattened.

Pacific Ethanol also ran into financial trouble, and it had to put its four ethanol plants in bankruptcy in 2009. After a series of refinancings, offerings and buying back notes, Pacific Ethanol owns about 97 percent of its plants again. With the recovery of the economy, Pacific Ethanol is stable and growing. The company also is expanding sales of ethanol byproducts such as corn oil and wet distillers grain, both of which are livestock feeds, and even carbon dioxide, which is used to make dry ice.

In March, Aventine sold its idled corn ethanol plant in Mount Vernon, Ind. to San Antonio-based oil company Valero Energy Corp. Valero (NYSE: VLO), which subsequently began operations at that plant in the third quarter. Valero already has sold enough ethanol to cover the cost of buying that plant, which has a capacity of 110 million gallons.

The five largest ethanol producers in the country represent about 40 percent of the total 14.9 billion gallons of annual U.S. ethanol production, according to information compiled by the Renewable Fuels Association. The country has about 200 ethanol plants, ranging from 500,000 gallons per year output to 130 million gallons per year output.

Decatur, Ill.-based grain processor ADM is the nation’s largest ethanol producer at 1.8 billion gallons a year through seven production plants. The second-largest producer is POET, which is based in Sioux Falls, S.D., and produces 1.6 billion gallons annually through 27 plants. Valero is the third-largest producer with 1.4 billion gallons a year through 11

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