Red Trail Energy finalizes asset sale to Gevo subsidiaries

Red Trail Energy, LLC, an industrial organic chemicals manufacturer based in North Dakota, has completed a major transaction involving the sale of nearly all its assets to Gevo , Inc. (NASDAQ:GEVO) and its subsidiaries. The deal, which closed on Monday, was previously announced and finalized for a purchase price of $210 million, subject to adjustments. For Gevo, which currently has a market capitalization of $403.65 million, this represents a significant acquisition. According to InvestingPro data, Gevo maintains a strong liquidity position with a current ratio of 8.25, indicating robust capability to handle such major investments.

The asset sale agreement, initially dated September 10, 2024, led to the termination of several material contracts and the repayment of outstanding loans to Cornerstone Bank. The company repaid a $10 million promissory note and a $25 million loan, both of which were due in April 2025 and January 2032, respectively. Additionally, a loan under the Ethanol Recovery Program for $5.41 million was also settled. InvestingPro analysis reveals that Gevo holds more cash than debt on its balance sheet, though investors should note the company has been quickly burning through cash. InvestingPro subscribers have access to 12 more key insights about Gevo’s financial position.

Several of Red Trail Energy’s contracts were either assigned to Gevo’s subsidiaries, R-CCS and NZ-R, or terminated. Notable contracts assigned include agreements with The Burlington (NYSE:BURL) Northern and Santa Fe Railway Company, West Plains Electric Cooperative, Inc., and ICM, Inc., among others. Conversely, marketing agreements with RPMG, Inc. and CHS, Inc., as well as several loan-related agreements with Cornerstone Bank, were terminated.

In conjunction with the asset sale, Red Trail Energy’s operations have ceased. The company’s Grain Merchandiser, Ryan Weige, was terminated and subsequently hired by a subsidiary of Gevo. Moreover, Jodi Johnson, the CEO of Red Trail Energy, received a $25,000 award due to the closure of the sale. Although her employment agreement was terminated, she remains the CEO post-transaction.

This strategic move was approved by the company’s members during a special meeting held on December 5, 2024. Gevo had previously deposited $10 million in earnest money, which was applied to the purchase price. An additional $1.26 million was deposited to secure post-closing indemnification obligations, and $5 million was allocated for any purchase price adjustments.

The completion of this acquisition signifies a notable change in the operations and management of Red Trail Energy. As the company no longer maintains operations, the focus shifts to the integration of its assets into Gevo’s portfolio and the future endeavors of both entities. Notably, Gevo’s stock has shown remarkable momentum with a 225.93% price return over the past six months. For detailed analysis and comprehensive insights about Gevo’s future prospects, including Fair Value estimates and financial health scores, investors can access the full research report on InvestingPro. This article is based on a press release statement.

In other recent news, Gevo Inc. has been making significant strides in its operations and financial growth. The company reported a revenue growth of 16.59% in the last twelve months, despite challenges with profitability, as indicated by a negative EBITDA of $75.61 million. H.C. Wainwright maintained its Buy rating on Gevo’s shares, citing the company’s advancements in profitability and cash flow prospects. Key developments include the acquisition of Red Trail’s ethanol plant, which reported a gross profit of $5.3 million and a net profit of $3.8 million.

Gevo has exceeded its annual target rate of renewable natural gas production and initiated the commercialization of its Verity tracking system. The company is also making progress with its Ethanol-to-Olefins technology, expected to generate licensing revenues in the coming months. Furthermore, Gevo announced the pending acquisition of Red Trail Energy, which is expected to generate an estimated $200 million in revenue for fiscal 2023, and received a $1.63 billion conditional loan from the U.S. Department of Energy for its Net-Zero 1 Sustainable Aviation Fuel project.

Finally, Gevo integrated the recently acquired CultivateAI into its operations, which is projected to contribute $1.7 million to the revenue in 2024. Despite reporting a loss from operations of $24 million for Q3 2024, Gevo maintains a robust financial standing with $292.9 million in cash and a combined revenue and interest income of $5.8 million. These are the latest developments in Gevo’s strategy to enhance its revenue and its sustainable aviation fuel project.

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