Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Green Plains (NASDAQ:GPRE), the nation's fourth largest ethanol producer, are up nearly 15% today after announcing that it plans to spin-off certain assets into a new, publicly traded company called Green Plains Partners LP. The IPO date and number of shares offered have yet to be determined, but the company estimates the IPO will raise $200 million to $250 million for the master limited partnership.
So what: Green Plains is currently a vertically integrated renewable products company that owns ethanol production facilities, corn oil manufacturing capacity, grain storage assets, animal feedlots, transportation assets, and storage facilities. After the IPO, Green Plains Partners LP will own the ethanol transportation and ethanol storage assets.
Those two categories currently comprise 2,200 leased railcars for transporting ethanol and storage facilities with a combined annual throughput of 822 million gallons -- enough to handle 5.5% of America's total ethanol production each year. Funds raised from the IPO will likely be used to purchase additional assets from the parent company in addition to growing the transportation and storage network to handle even larger volumes of production.
This matters for two reasons. First, the marketing and distribution segment is the second most profitable after ethanol production. The IPO allows the company to easily raise new funds to grow the business. That could be needed if the current lull in the ethanol market persists beyond 2015.
Second, it helps to mitigate risk associated with the transportation business. Consider that Green Plains has utilized a portion of its railcars to transport crude oil to better monetize its assets. That has boosted profitability in the past, but an oversupply of railcars has pushed lease revenues down significantly. In other words, this could indirectly act as a hedge against a slowing oil boom and protect profits at Green Plains.
Now what: While Green Plains filed an S-1 form announcing its intentions for an IPO for its ethanol transportation and storage assets, the details are still a bit fuzzy at the moment. This is certainly good news for investors, especially those looking for long-term growth. That being said, due to the immaturity of the proposal, there's no need to rush into adding more shares on the news today.