Following reports late last week that a deal was in the works, Chevron Corp. announced Feb. 28 it would acquire the outstanding shares of biofuels producer Renewable Energy Group Inc., or REG, in an all-cash transaction valued at $3.15 billion.
Total enterprise value of $2.75 billion includes a net cash position around $400 million greater than debt, Chevron said in a statement.
The price works out to $61.50 per share, a 57% premium over REG’s 30-day average based on closing stock prices on Feb. 25.
The acquisition combines REG’s expanding renewable fuels production and feedstock capabilities with Chevron’s large manufacturing, distribution and commercial marketing position.
The transaction is expected to add to Chevron earnings in the first year after closing and to free cash flow after start-up of REG’s expansion of its Geismar facility.
Leading the legal team from Chevron is Siva Barnwell Adams, managing counsel in the major transactions law group at Chevron Upstream in Houston.
Her team members included Lisa Guevara, senior counsel for downstream in San Ramon; Melissa Patangia, senior counsel for intellectual property in Houston; Andrea Hogan, senior counsel for environmental and safety law in San Ramon; and Chris Cavallo, assistant secretary and managing counsel for the corporate governance department in San Ramon.
Chevron’s outside counsel was Paul, Weiss, Rifkind, Wharton & Garrison.
Eric Bowen led the deal in-house as general counsel at REG. The company used Latham & Watkins as outside counsel led by Chicago partners Bradley Faris and Mark Gerstein and New York partner David Owen.
Siva Barnwell Adams
Goldman Sachs & Co. was financial advisor to Chevron and Guggenheim Securities assisted REG.
Tudor Pickering Holt analyst Matthew Blair said it was an excellent deal for REG with a “great price” in the face of increasing competition.
Piper Sandler senior research analyst Ryan Todd, who had a target price of $73 on REG, sees the combination holding significant industrial logic.
“As one of the largest and most tenured players in biofuels and one of the lowest cost producers, REG would bring significant operational/feedstock knowledge and customer relationships on both the feedstock and marketing side as well as a large, diverse asset base across Europe and the U.S.,” he wrote, noting a strategic position in the U.S. Gulf of Mexico to complement Chevron’s ongoing conversion at the El Segundo refinery in California.
Todd continued by saying REG’s feedstock flexibility and customer relationships “have made it one of the most advantaged industry players” and the combination would offer the potential for improvement in its marketing and logistical capabilities, including downstream distribution capacity and the possibility of material improvement in its biodiesel margins.
Further, with around $130 million per year of selling, general and administrative expenses at REG, “We see the opportunity of synergies to further support deal economics.”
The transaction is expected to accelerate progress toward Chevron’s goal to expand renewable fuels production capacity to 100,000 barrels per day by 2030 and brings additional feedstock supplies and pre-treatment facilities.
After closing of the acquisition, Chevron’s renewable fuels business, called Renewable Fuels – REG, will be headquartered in Ames, Iowa. REG CEO and president CJ Warner is expected to join Chevron’s board.