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Acquisition Envy… or Regret?

Renewable Energy Group, Inc. (REGI) acquired renewable chemical technology developer LS9, Inc. for $61.5 million this week. This officially enters REGI into the realm of industrial biotech – a renewable chemicals platform the North American biodiesel producer has been yearning to infiltrate.

This is the second acquisition in just over a month for REGI, which recently bought synthetic biodiesel maker, Syntroleum Corporation (SYNM), for $40 million.

Some analysts are wondering, however, if the company went too far, too fast.

They have reason to be skeptical, too.

On January 22, REGI announced its acquisition of LS9, Inc. And on January 23, as you see in the chart below, the shares dropped 10.5% – and have continued to fall since.

So did REGI make a huge mistake?

Let’s take a look…

A Dash of Doubt

If you’re unfamiliar with LS9, the company develops renewable chemicals for use in detergent and personal care products.

The problem is, these chemicals, which utilize the natural efficiency of fatty acid metabolic pathways of microorganisms, have yet to be commercialized.

In other words, they’re not making any money.

For REGI, purchasing a company that isn’t pulling in revenue certainly adds a dash of uncertainty.

Not to mention the fact that REGI had already purchased Syntroleum in December 2013.

There is something these analysts are ignoring, though…

Capacity for Renewal

While the company’s five-day outlook may look dismal, consider that shares are actually still up 60% this year.

REGI also added 37.5 million gallons to its 257-million-gallon production capacity when it entered into the asset purchase agreement with SYNM – an increase of almost 15% to its total capacity.

More important still is that SYNM also owns 50% interest in Dynamic Fuels, LLC, a 75-million-gallon renewable diesel production facility in Louisiana. This is a huge entryway for REGI into the world of renewable diesel and expands the company’s production capacity and geographic footprint.

This means that the SYNM purchase should boost REGI enough that the youth of LS9 should not count for anything but an upside. Investors buying at today’s discounted price are appreciating it – that’s for sure.

So will REGI sink or swim?

Stay tuned as Oil & Energy Daily watches REGI closely over the next few months – and let me know what you think will come of this epic plunge.

And “the chase” continues,

Burns Foster