If you have an operating ethanol plant today, there is a good chance that someone has recently offered to buy it—in one form or another. Our rapidly growing industry has already reached the consolidation stage. I can't tell you whether you should sell or participate in a merger. Each opportunity is a little different, and beauty still lies in the eye of the beholder. This article briefly discusses the use of the "letter of intent" in the initial stages of the negotiation, if you decide to proceed with the sale of your ethanol plant.
 
 Merger and acquisition discussions usually begin with a confidentiality agreement—something you're probably familiar with if you're the owner of an ethanol plant. Confidentiality agreements typically prohibit both sides from discussing the negotiations with outside parties. Exceptions are usually provided for discussions with your lawyer, accountant and other necessary consultants. If there's a danger in this stage of the process, it's being too complacent. You need to read the confidentiality agreement because, although they are universally pretty boring, all confidentiality agreements are not created equal. If you have not already called your lawyer, now is a good time. You should notify your accountant as well. 
 
 Upon conducting some preliminary due diligence, your board of directors may decide to proceed to the next step. At this point, the parties often begin to exchange a draft letter of intent. You have seen these before, too. You know that the letter of intent is going to outline the specific terms of the deal. Generally, you are going to find that the buyer is offering stock (in the buyer's company), cash or some combination of both in exchange for either your equity or your assets. There is not enough room in this article to go into all of the variations. However, we can dispel one common myth about letters of intent: the mistaken notion that letters of intent are not binding. In fact, most such letters include some expressly binding language. Be aware of it.
 
 Other important provisions of the letter of intent include employment contracts with officers and directors; registration rights, which are important if you are getting restricted stock in the deal; assumption of debt; management and marketing contracts; and pending dividends. Letters of intent should also discuss important conditions of closing, such as obtaining the required income tax treatment or consents from third parties, e.g.,as your shareholders. A failure to satisfy such conditions may relieve either you or the buyer from an obligation to proceed.
 

 At this point, many buyers want you to issue a joint press release. I'll admit that I am not a huge fan of press releases for deals that are not yet done. If you have an Securities of Exchange (SEC) reporting company, and your letter of intent didn't trigger an SEC filing requirement, then your press release probably will. As a practical matter, once you tell your shareholders and the rest of the world about your deal, then it will be harder for you to walk away from it. And the harder it is to walk away from a deal, the less negotiating power you will have. Leave the press release for later.
 
 As the seller, your best bargaining position is during the letter of intent stage, so do not discount the importance of this stage of the process. You and your company will be best served by getting the letter of intent as accurate and complete as possible, and by carefully considering the terms of the letter of intent and their effect on the deal. 
 
 Bill Hanigan chairs the renewable fuels practice group at the Des Moines, Iowa-based law firm of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum. Bill's practice includes identifying and solving specific financial and operational issues for organizers and owners of renewable fuels manufacturing facilities. Reach him at <a href="mailto:hanigan@ialawyers.com">hanigan@ialawyers.com</a>or (515) 242-2473

Negotiating a Letter of Intent to Sell Your Ethanol Plant

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Upcoming Events

2024 International Fuel Ethanol Workshop & Expo

Biodiesel Summit: Sustainable Aviation Fuel & Renewable Diesel

Carbon Capture & Storage Summit

North American SAF Conference & Expo

2025 International Biomass Conference & Expo

Negotiating a Letter of Intent to Sell Your Ethanol Plant