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David Einhorn Proposes Reverse Takeover Of Former BioFuels Company For Its $178 Million Tax Losses

David Einhorn / Getty

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BioFuel Energy Corp is a publicly traded company headquartered in Denver, Colorado. Biofuel Energy was founded in 2005 with initial production commencing from two bio ethanol plants commencing in 2008.

BioFuel Energy was once a stock market darling and, at the height of the initial rush to bio fuels a few years ago, was once valued at well over US$1 billion during 2007.

With the subsequent recession and some distinct second thoughts about the rate of penetration of biofuels into the automotive market, in particular, the shares subsequently crashed and the company eventually ceased production entirely.

In late November of 2013, what was by then a heavily indebted company announced it had completed a deal with its lenders, avoiding foreclosure. Under an existing senior secured credit facility these lenders exercised a right under a Deed In Lieu of Foreclosure Agreement (the “Deed in Lieu”) to acquire the Company’s ethanol plants, which they then sold to another ethanol producer, Green Plains Renewable Energy, Inc.

Under the terms of the Deed in Lieu, the lenders extinguished all of the amounts due under the credit facility, which as of September 30, 2013 totaled US$177 million. This was all very carefully expressed in order to help the company preserve as much as one could of what were at the time a total of about US$250 million of available tax loss carry forwards. These were, and still are, the company’s only significant remaining assets other than about US$10 or 11 million of cash.

At the time the shares sank to pretty close to zero, but have now recovered in recent weeks to US$7 per share for a current market capitalization of about US$40 million.

This rise has come as private equity guru David Einhorn’s hedge fund, Greenlight Capital, has bought up a large 35% position in the company in the interim, basically obviously with an interest in taking advantage of the company’s tax losses. These, at December 31st, 2014 still remained at about US$178 million even after a partial recognition of income which came with the loan extinguishment itself.

Then on Friday of last week we learned that the company had received a proposal from Einhorn to indirectly take control of BioEnergy, in a manner which would turn it into a real estate company. The preliminary proposal involves Biofuel buying real-estate assets controlled by Greenlight, and by real estate investor James Brickman, for US$275 million, to be paid in cash and Biofuel stock.

In other words a reverse form of takeover, and quite likely a good chunk of that valuation number being in the form of existing real estate debt assumed upon the acquisition.

Under the terms of the proposed deal Brickman will become Biofuel Energy’s CEO and sit on the company’s board, along with David Einhorn himself. When the dust settles Brickman, and his family, will own 8.4 percent of the company while Greenlight will own 49.9 percent.

Biofuel has correctly said it would establish a special committee of independent directors to evaluate the proposal, and other options for the company. One would think it is likely to proceed however given the parties involved and the probable lack of compelling alternatives.

Again the form of acquisition matters, and the reverse takeover itself is quite likely designed not to risk the validity of the US$178 million of tax loss carry forwards still on the company’s books.


About David Einhorn

David Einhorn is the founder of President Greenlight Capital an American hedge fund based in New York, which is described as a “long-short value-oriented hedge fund” – whatever that means.  I think it basically means his company tries to make money guessing about the future with other people’s money….

If that is so it has done very well, earning a compound rate of interest of 21% per annum since David started the company in 1996 with just $1 million of capital.  Today Greenlight manages several billion dollars of capital, including its partners’ and outside investors’ funds.  He has made plenty of profits shorting some very large companies just at the right time, including Allied Capital and Lehman Brothers.

David has written a book called “Fooling Some of the People All of the Time” which pretty well sums up his views of elements of the industry in which he participates.

He is also Chairman of the Board of Greenlight Capital Re, Ltd. A Cayman Islands-based re-insurance company and in private life he serves on the boards of Hillel: The Foundation for Jewish Campus Life, The Michael J. Fox Foundation for Parkinson’s Research, and the Robin Hood Foundation.

David was born in New Jersey and grew up in Wisconsin.  He graduated summa cum laude with distinction in all subjects from Cornell University, where he earned a B.A. from the College of Arts and Sciences.




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