Andersons to Buy Ethanol Biz - Analyst Blog


The Andersons, Inc. ( ANDE ) has entered into an agreement with two companies, Amaizing Energy Dennison LLC and Amaizing Energy Holding Company, LLC, to buy a Dennison-based ethanol production business. The value of the deal is undisclosed as yet.

The new ethanol production plant, which will carry out its operation in the west of Mississippi, would be included in the Ethanol Group of The Andersons Dennison Ethanol, LLC, a subsidiary of Andersons. The Ethanol Group generated nearly about 12.7% of the total revenue in the fourth quarter of 2011.

Andersons' Ethanol Group already manages the operations of three plants like Andersons Albion Ethanol LLC in Michigan, The Andersons Clymers Ethanol LLC in Indiana and The Andersons Marathon Ethanol LLC in Ohio.

Following the acquisition, Andersons will extend its geographical boundaries aiming at diversification and also augment the customer base in the Ethanol Group of the company; spreading out both its production and marketing services in the new area. The company's strategy to diffuse in larger area would also help in gaining arbitrage and risk management facilities with the plants already operating under its wings.  

Management plans to shift some of the administrative staff already working with it to the new plant after completion of the acquisition process. It also contemplates slashing down the costs per gallon by utilizing same technology in the four plants of the Ethanol Group.

Furthermore, the new facility would also assist in rendering greater efficiency to the grain market and other related services of grain producers based in Iowa. In addition, the new plant is expected to complement the Iowa Northern Railway Company and Lansing Trade Group.

Andersons generates the majority of its revenue from the Grain & Ethanol Group. It contributed nearly 80% in the fourth quarter of 2011. The company thus makes constant efforts to upgrade the business and strengthen its market position in the face of growing competition.

The company's weak Retail segment, however, is a cause for concern for the company. Andersons is also witnessing a decline in customer count as well as a lower average sale per customer, as customers are cutting down on discretionary spending.

Currently, the shares of Andersons retain a Zacks #3 Rank (short-term "Hold" recommendation). It competes with companies like Archer Daniels Midland Company ( ADM ), CHS Inc . ( CHSCP ) and privately held Cargill, Inc.

Based in Maumee, Ohio, The Andersons is a diversified company operating in five different business segments ranging from buying, selling and storing grain to leasing railcars and running retail stores, catering to the latest home hardware needs. The company has operations across the U.S. and in Puerto Rico, in addition to rail equipment leasing interests in Canada and Mexico.

ARCHER DANIELS ( ADM ): Free Stock Analysis Report
ANDERSONS INC ( ANDE ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ADM , ANDE

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