(By Mani) The Andersons, Inc. (NASDAQ: ANDE) announced the acquisition of 12 grain elevators and 12,000 tons of nutrient storage capacity from Green Plains Renewable Energy Inc. (NASDAQ:GPRE) for $133.1 million, including $28.3 million in debt.
The agreement involves the purchase of seven facilities in Iowa and five in Tennessee, with a combined grain storage capacity of about 32 million bushels, 12,000 tons of nutrient storage and more than 130 employees and working capital.
This acquisition aligns with Andersons' geographic growth strategy for both its grain and plant nutrient businesses and the company expects it will be accretive on a full-year basis in 2013.
The acquisition implies an EV/EBITDA multiple of 9.5x-10.5x, which is largely in line with recent agribusiness asset transactions, is expected to be accretive in 2013, and increases Anderson's grain storage capacity by nearly 30 percent.
"We applaud ANDE for taking the appropriate steps to increase its long-term earnings power and recognize the strategic rationale for expanding its asset footprint into white spaces., BMO Capital Markets analyst Kenneth Zaslow said in a client note.
With this acquisition, Andresons is positioned to emerge from the poor crop conditions with increased earnings power. First, the acquisition should create a step up in its ability to generate space income in the form of storage fees, basis gains in a normal crop production environment.
In addition, Andersons' more diversified asset base should allow it to increasingly capitalize on regional dislocation opportunities created by crop production and quality disparities across the Corn Belt by continuing its geographic diversification into the Western Corn Belt and expanding into the Southern US.
"ANDE likely will leverage its larger volume base to increasingly generate more stable fee-based income, as ANDE could supply incremental ethanol facilities with corn and market its ethanol, DDGs, corn oil, and C02 (Iowa has the largest corn planted acreage in the US)," Zaslow said.
Zaslow expects the acquisition likely would be accretive by only 4 to 8 cents a share in 2013 reflecting the smaller US crops and absence of basis opportunities.
"Though access to capital remains sufficient, ANDE's balance sheet is becoming more levered as its debt to EBITDA ratio would increase to nearly 4.5x with all debt financing for the acquisition relative to five-year-average year-end levels of 3.4x," the analyst said.
However, the company's s near-term Grain and Ethanol fundamentals remain challenging. Specifically, the outlook for Andersons Grain segment likely will be limited by the smaller US crops, elevated geographic basis, the moderating variable storage rate, and the absence of carry in the futures markets.
In addition, ethanol margins remain below breakeven levels, pressured by high corn prices and basis, elevated ethanol supplies, increasing imports mitigating the decline in domestic production, and lackluster gasoline demand.
"While we recognize the strategic rationale for the acquisition, our near-term outlook for ANDE remains unchanged reflecting limited near-term accretion, increasing balance sheet stress, and the difficult operating environment in Grain and Ethanol," Zaslow added.