The Central Minnesota Ethanol Co-op on Wednesday entered into a letter of agreement to allow Green Biologics Inc. to acquire substantially all of its assets.
Green Biologics, a technology developer that specializes in renewable chemicals and advanced bio-fuels, is based in Gahanna, Ohio. It is a subsidiary of Green Biologics Ltd., a 10-year-old company that is based in England. CMEC was established in 1995 as an ethanol company based in Little Falls.
While both parties have reached preliminary agreement on key terms of the transaction, a final Asset Purchase Agreement remains to be negotiated. The proposed transaction is subject to closing conditions and regulatory approvals, in addition to the approval of CMEC's 800 members.
The Little Falls plant cost about $30 million to build, was several years late in starting production and was temporarily idled last summer -- in part because of the high price of corn and a low availability of it locally.
"CMEC has been in a strategic alternative process for probably the last year," co-op CEO Dana Persson said. "We're a small plant in a world that makes bigger, more efficient plants in an industry that's getting a little long in the tooth. We've got some handicaps but we've got some positives, too."
Persson said his organization considered other proposals before entering into the exclusive letter of intent with Green Biologics, whose offer "represents the highest value to our shareholders." Los Angeles-based Ocean Park Advisors acted as financial adviser to CMEC on the transaction. Its shareholders will hear the proposal in late November or early December, Persson said.
Tim Staub, vice president of business development for Green Biologics, said the purchase agreement likely will be signed next month and give his company a window of 2014 to close the deal at a pre-determined price.
"We know what that is now but we're not going to share that publicly," Staub said. "But I would tell you that I think CMEC shareholders should be very excited, and I can tell you that we are very excited. It's a good deal all the way around."
In the interim, corn purchases, ethanol and co-product production efforts will continue in full force for CMEC. But Green Biologics President Joel Stone plans to convert the Little Falls facility to produce normal butanol or n-butanol, which is used in paints, coatings, adhesives, inks, plastics, pharmaceuticals, food ingredients, household cleaners and personal care products.
"We're excited to put Little Falls back on the map for renewables," said Stone, reached Wednesday while he attended an advanced biofuels conference in Omaha, Neb. "It's going to be a seamless transition and the people who work there are part of the attraction. They have a core competence we desire because that was one of the first ethanol plants in Minnesota."
The global market for n-butanol exceeds $8 billion, according to Green Biologics, which maintains laboratories, pilot facilities and U.S. corporate offices in Ohio. It also operates in China, India and Brazil. It is in the process of raising capital to convert an existing demonstration plant in Emmetsburg, Iowa, before attempting the same on a larger scale in Little Falls.
"In a perfect world we wondered 'What if there's somebody out there who's got new technology that makes a lot of sense who could repurpose the plant and bolt onto the existing infrastructure and still use corn?' " Persson said. "That's what we found in Green Biologics, so it's a perfect marriage, really."
Staub said ethanol as a fuel less than half the value of n-butanol as a chemical.
"Why mess with making a fuel when you can sell (n-butanol) as a chemical to companies like Valspar and 3M?" Staub said. "The demand for renewable chemicals is booming and we don't foresee a future where that plant (in Little Falls) is ever going to struggle for survival again."
CMEC employs about 30 people and has a payroll including benefits of more than $1 million annually. Staub said he expects most if not all employees to retain their jobs.