It's not often you see a company acquiring another business of almost exactly the same size, but Darling International (NYSE:DAR) just announced its intentions to do exactly that.
In a press release Monday, Darling stock rose more than 4% after the rendering and biodiesel specialist stated it has entered into a definitive agreement to acquire Vion Ingredients, a subsidiary of Netherlands-based Vion Foods, for just under $2.17 billion in cash.
And I thought the last purchase was big...
For those of you keeping track, that's around 87% of Darling's entire $2.5 billion market capitalization. Unsurprisingly, Darling doesn't exactly have $2.2 billion lying around, especially after its $613 million acquisition of fellow rendering company Rothsay, which was announced in August and expected to close later this month. As a result, Darling plans to finance this week's deal using a combination of bank debt, public debt, and existing equity.
Vion's business, for its part, sounds strikingly similar to Darling's; it focuses on converting slaughter industry by-products for specialty uses and ingredients in the food, feed, fertilizer, pharmaceuticals, and bio-fuel industries.
To be sure, Vion boasted revenue of roughly $2.17 billion in fiscal 2012, with earnings before interest, taxes, depreciation, and amortization of around $271 million over the same period. By comparison, Darling had net sales of around $1.7 billion in fiscal 2012, with adjusted EBITDA of $317 million.
Keep in mind, though, that that doesn't include the benefits from Darling's Diamond Green Diesel start-up, a joint venture with Valero (NYSE:VLO) that is started last quarter. While the plant would likely have increased Valero's net income in 2012 by only around 2% had it run at full capacity last year, Darling's bottom line would have grown by more than 31% over the same period.
Darling's latest buy should serve to further solidify its status as a growing force in the global biodiesel industry, something that should worry the more established companies in the sector, including Renewable Energy Group (NASDAQ:REGI) and Bunge Limited (NYSE:BG). While Bunge remains a relatively small investor in actual biodiesel production plants, Darling's increased international presence could threaten Bunge's efforts to negotiate agreements to supply the vegetable oils used in the production process.
Meanwhile, Renewable Energy Group focuses primarily on the North American market through its operation of eight biorefineries across the country, which combined put out more than 255 million gallons of biodiesel per year. Darling's single DGD plant should ultimately allow it to put out 137 million gallons per year.
That's not to say Renewal Energy Group is sitting on its heels; on the contrary, the company is constructing four biodiesel plants which will collectively increase its output by around 150 million gallons per year. Still, I'd be willing to bet the folks at Darling simply can't wait to utilize the added materials from their Vion acquisition to further bolster their own biodiesel production efforts in the future.
CEO Randall Stuewe noted the transaction will "further diversify Darling International's revenue and EBITDA profile both geographically and from a product line point of view."
Better yet, it's also expected to be immediately accretive to Darling's adjusted earnings per share. That's why, in the end, I'm convinced that once we move past the inevitable one-time charges incurred as part of the acquisition, investors should be excited to own a piece of Darling, which will emerge a larger, stronger, and more dominant industry force than ever.