Gediminas Jasionis

Ethanex Agrees to Buy an Ethanol Plant (But Can It?)

by Gediminas Jasionis February 11, 2008
MRE_ethanol_plant_2.JPGIn a deal of $220 million in cash and Ethanex stock, Ethanex Energy, Inc. (OTCBB: EHTE) announced today that it signed an Asset Purchase agreement to buy an ethanol plant from Midwest Renewable Energy, LLC. The plant is located in Sutherland, Nebraska. The deal is still subject to adjustments specified in the agreement.

The agreement follows up a letter of intent signed in November.

The agreement states that several new subsidiaries of Ethanex will be transferred virtually all the assets and some liabilities of Midwest. In the first transaction of the deal, Ethanex will buy the ethanol plant for $50 million in cash. In second and third transactions of the deal, subject to various conditions, Ethanex will have paid Midwest $60 million in cash and $25 million in Ethanex common stock.

The deal is conditional on Ethanex receiving bridge financing sufficient to permit it to operate through the first transaction of the deal, which is expected to occur in the second quarter of 2008. Ethanex calls for $1.5 million in financing just to survive into the second quarter. Either company can terminate the agreement after March 5, 2008, if Ethanex has not received at least $1.5 million in bridge financing by that date. Furthermore, Ethanex anticipates filing for bankruptcy protection in that event.

The deal is also conditional on Ethanex stockholders, who would be required to approve an increase in the number of authorized shares of Ethanex capital stock. The deal is further dependent on regulatory agencies and other parties.

That's a lot of conditions. But wait, there's more. Another condition is that if the first transaction occurs but then Ethanex cannot receive financing for the second or third transactions, then Midwest and Ethanex will operate the plant as a joint venture.

Meanwhile, last month, Ethanex announced that it had put on hold plans to start construction on an ethanol plant in Illinois, due to concerns over the ethanol market. "It was put on hold just a bit until some of the economics of ethanol goes up," said Ethanex Chairman Bob Walther, who continued, "We're very positive about it, the prices are already increasing and the price of ethanol is going back up."

What's going on inside the company? Let's take a look. As of September 30, 2007, Ethanex listed its cash on hand at under $1 million, with total assets of under $10 million. For the three months ending September 30, 2007, the company sustained a loss of over $3 million. This is their norm. The company's SEC filing explains, "The Company is currently in the development stage, and there is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support current operations and generate anticipated sales. This raises substantial doubt about the Company's ability to continue as a going concern."

EHTE.jpg

Following news of the agreement, the Ethanex's stock, EHTE, is up 4.44 percent since opening this morning, now trading at $0.94 a share, but time will tell how this plays out.

The odd spike in stock price back in January was due to a reverse stock split, as explained in the company's SEC filing: "Pursuant to the reverse stock split, each shareholder of record of the Company's common stock on the record date of January 21, 2008 will become entitled to receive one new common share in exchange for every ten old common shares held by such shareholder."

To summarize, Ethanex has agreed to buy an ethanol plant, but whether it actually can depends on its ability to obtain financing. And even Ethanex has indicated that without financing it will probably have to file for bankruptcy protection. It's do or die time for Ethanex.

The related company websites are:

http://www.ethanexenergy.com
http://www.mreethanol.com/

Comments 1

1. Guest
November 29, 2008, 02:31AM

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