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Case Study: Lessons from Western Wisconsin Energy Plant Sale

Posted by on in Mergers & Acquisitions
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January 6, 2012


Western Wisconsin Energy, LLC (Western Wisconsin) was conceived by local farmers, local investors and LLC partners. The company’s vision was to build a best-in-class Fagen/ICM ethanol production facility with a strategic location and world-class infrastructure, design, construction and implementation. Like many independent ethanol plants, it was Western Wisconsin’s goal to build an ethanol plant that met the needs of members/investors and the community, strengthened the regional economy by creating new jobs and added to the tax base.

 

Western Wisconsin Energy’s intent was to position the business to be competitive over the long-term. The company reinvested over $12 million in property, plant and equipment during their 5 years of operation. Due to the desire of a large minority shareholder to exit its investment in Western Wisconsin, the company hired Ascendant Partners to assist it in exploring options and strategies for the future of the business. The objective was to give the Board a clearer understanding of the economics of its options. Based on the information provided by Ascendant Partners, the Board determined that the most advantageous option for the members was to sell the plant.


The Board considered a number of options in addition to the option to sell the plant, including bringing in another minority investor and taking on new debt. As an independent player in a consolidating industry, the Board recognized that there is a competitive hurdle for the independent plant that is continuing to rise. Increasing capital requirements from diminishing policy incentives, the end to its accelerated depreciation, constant pressure to reduce operating costs, mitigating risk in an increasingly volatile market and investing in R&D, all represent realities of competing in this industry in the future. In the end the decision to sell the plant was based on a combination of being concerned with expanding leverage in a volatile market environment and the fact that the company would be able to capture a good return for shareholders in a sale.


Every independent ethanol plant faces a dilemma about how to best position its business to maximize the shareholders’ value. This brings to light many questions: does the Board strive to make the plant a low-cost operation, does the Board invest in new technology, does it consider a merger, or does it cash out today or tomorrow. In the end Western Wisconsin’s Board believed selling the plant was the best option for the shareholders. The answer is different for every ethanol plant. No matter which direction you choose, it is most important to assess your options objectively and use a disciplined and quantitative approach to assess the options. This approach helps avoid the “do nothing” paralysis that comes when boards and management are making decisions using subjective positions and increases the odds of making the best informed investment decision.
 

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