This biodiesel producer soared 35% today: what’s fuelling the stock?

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Shares of Renewable Energy Group Inc (NASDAQ: REGI) are up 35% on Monday after Chevron Corp (NYSE: CVX) said it will buy the biodiesel production company for $3.15 billion in cash to speed up its transition into clean energy.

Renewable shareholders to receive $61.50 per share

The deal translates to $61.50 per share for Renewable stockholders, a premium of 40% on the price where REGI closed the last week. The transaction is expected to close in the back half of 2022, subject to customary closing conditions.

Cynthia Warner – the chief executive of Renewable Energy will join the oil giant’s board once the acquisition is complete. In the press release, she said:

This transition delivers premium cash value to shareholders and will give us additional resources as we aim to accelerate growth and strengthen our collective ability to deliver the sustainable fuels our customers and the world need.

Impact on Chevron’s earnings and free cash flow

Both companies have received approval from their boards of directors for the deal that will see Chevron setting up a headquarter for its renewable fuels business in Ames, Iowa. As per the press release:

The transaction is expected to accelerate progress toward Chevron’s goal to grow renewable fuels production capacity to 100,000 barrels per day by 2030 and brings additional feedstock supplies and pre-treatment facilities. Together, we can grow more quickly and efficiently than either could on its own.

Chevron expects the acquisition to be accretive to its earnings in the first year after closing. The benefit to free cash flow will materialize once REG’s Geismar expansion is operational. The agreement is yet to receive a regulatory nod and approval from Renewable shareholders.

Last month, Chevron reported mixed results for its fiscal fourth quarter.

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