Pacific Ethanol is buying Aventine Renewable Energy, more than doubling its annual production and creating the country's fifth-largest ethanol producer.
Ethanol producers, which have long operated on thin margins, are under pressure this year because of plummeting gas prices. Prices must fall to remain competitive with other fuels, thinning margins even further.
The deal announced Wednesday provides new scale for the Sacramento company. Pacific Ethanol, which dominates markets in the West, picks up Aventine's infrastructure and networks in the Midwest and East. Aventine is based in Illinois.
"The merger offers a rare opportunity to combine the experience, market presence and diversification that Aventine brings with our industry leadership in Western U.S. markets," said Pacific Ethanol Chief Executive 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."
If the deal closes as expected in the second quarter of 2015, Aventine will become a subsidiary of Pacific Ethanol.
Pacific Ethanol will use 17.75 million of its own shares in exchange for all outstanding shares of Aventine Renewable Energy Holdings Inc. That would value the deal at about $200 million, not including Aventine's debt, which Pacific Ethanol said is about $135 million. Pacific Ethanol shareholders would own 58% of the combined company.
After the deal closes, Pacific Ethanol would have the ability to produce 515 million gallons of ethanol a year, up from its current production capacity of 200 million gallons.
Shares of Pacific Ethanol Inc. fell 38 cents, or 3.6%, to $10.33 on Wednesday. Shares of Aventine, which trades over the counter, rose $3.10, or 34%, to $12.10.