CHARLOTTE, N.C. -- Can the union of two indebted companies create a single, profitable one? How one answers that could well define one's perspective of NewGen Technologies' purchase this week of the 200-plus retail network from Appalachian Oil Co. Inc. An upstart producer and distributor of biodiesel and ethanol-based fuel products, NewGen hopes the $30 million pickup of APPCO's retail assets secures a stable outpostfor its products.
But will motorists, notably those in Tennessee, the heart of APPCO's 58 company-run and some 150 dealer locations, embrace [image-nocss] alternative fuels? And what about the upfront capital investments to create an extensive retail chainfor alternative fuels?
The company bought APPCO because they want a large distribution chain in the Southeast, Marylee Booth, executive director at the Tennessee Oil Marketers Association (TOMA), told CSP Daily News. We're seeing alternative fuels growing in all of the states.
For the retail network, NewGen is paying $30 million and assuming another $7.3 million in long-term debt owned by APPCO. The deal is expected to close next month, according to the definitive agreement filed with the U.S. Securities & Exchange Commission (SEC).
Over the past 52 weeks, NewGen, a publicly traded concern which operated under the now-defunct Bongiovi Entertainment, has struggled to capture Wall Street's fancy. Peaking at $3.50 a share, the company is now selling at less than $1 per share. According to financial reports, the company lost more than $4 million in income in 2005.
What may be more promising is the company's most recent announcement that it has secured a $70 million, 10-year loan facility with BioFuel Investments LLC to fund the acquisition. "BFI's investment shows support for NewGen's business plan and the management's ability to execute, NewGen CEO Bruce Wunner said in a news release. Upon successful closing of this transaction, we expect to roll out additional strategic initiatives. Our next targets will focus on upstream supply to compliment our global Fields to Wheels' business plan.
NewGen plans to facilitate distribution of its premium blended biofuels through its wholly-owned subsidiary ReFuel America. How successful it is in Tennessee will likely hinge on street prices, especially that of diesel.
Noting that there are four biofuel plants in the state, Booth said companies like NewGen will especially benefit when diesel prices are high. People are going to buy on cost, she said. With diesel being so low because of the mild winter, bio fuels are not competitive. Prices are going to fluctuate. And I don't know if the biofuel companies are ready for that.
A message Thursday to NewGen COO Michael D'Onofrio was not returned.
While still in its infancy, the company, according to federal filings, expects to distribute to both the wholesale and retail segments E10, E85 and B20, a combination of 20% biodiesel and 80% conventional diesel, and premium diesel.
To accelerate growth, NewGen said in the filings that it hopes to enter into various joint-venture partnerships to build and operate biodiesel plants through the United States. Toward that end, the company last year purchased three fuel terminals from Crown Central LLC. It was through its terminals that the company started to learn more about APPCO.
According to an official familiar with both NewGen and APPCO, the two entered into talks last year about a venture that would combine their five terminals. APPCO has two terminals in Knoxville and ReFuel, NewGen's subsidiary, has three terminals, said the official, who spoke on condition of anonymity because of his work with a rival company. It was filed with the SEC, but my understanding was it got shot down.
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