By Rick Pearson
A separate sign is REG's puzzling acquisition yesterday of Syntroleum . As with Gevo and Plug, investors were quick to bid up the share price of REG in after hours. Yet this acquisition makes very little sense and signals that management is expecting a very sharp decline in the share price of REG.
What investors are missing is that there are truly no synergies and there is no near term value to be realized. Syntroleum's only plant has been idled for over a year and there is no production activity whatsoever. Syntroleum's stock closed yesterday at $2.46, but this was only the result of a 1:10 reverse split that was completed earlier in 2013. So in reality, REG just bought a 24 cent stock which was facing delisting from the Nasdaq this year.
Syntroleum is actually in the business "renewable diesel" not "biodiesel." REG is only involved in actual "biodiesel". Investors need to understand that these two products comprise entirely and radically different technologies which are in no way compatible. There are no synergies in the technology whatsoever.
From the 10K, "The Dynamic Fuels plant is operated at a single facility in Geismar Louisiana," Yet REG's operational facilities are almost exclusively located in the northern Midwest states. So in addition to the lack of technological compatibility, these facilities are also located on opposite sides of the country. There are also no production or logistical synergies.
Why would Renewable Energy rush to complete this seemingly worthless acquisition just days before the end of the year? The answer is that the acquisition was agreed via issuance of REG stock (NOT CASH) worth over $40 million at current prices. If REG knows that its stock is likely to fall by 50%-70%, then it is really paying around $15 million for these assets, which actually seems like a fair price.
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