Is it democratization of biodiesel, or consolidation?

REG filed for an IPO, what does it mean for the company, and the industry?
By Ron Kotrba | July 20, 2011

The big news this week is that Renewable Energy Group filed for its IPO (again) to go public. The company withdrew its initial filing a few years ago.

REG is the largest U.S. biodiesel company with five wholly owned facilities and one leased plant, with a total production capacity of 212 million gallons.

What does it mean for the industry when the nation’s largest biodiesel producer goes public? Also, what does it say about REG’s financial status right now?

In a broad sense, one school of thought is that stock exchanges, and the general public’s ability to buy and sell company shares, is the democratization of capital.

Those in opposition to this viewpoint insist only the illusion of such exists, since often times only a minority of any public company’s stock is offered for common purchase, with the majority retained by the few corporate elite.

In its SEC filing, REG states, “We have led the consolidation of the U.S. biodiesel industry.” Consolidation is generally considered by many to be incongruent with democratization.

The biodiesel industry is rife with localized, small, private production facilities, and larger private companies, which, together as a whole, is a fairly good representation of what a diverse, decentralized fuel industry should be. Some would say that is, for the lack of a better term, democratic.

“We have limited working capital and a recent history of unprofitable operations, and these working capital constraints may limit our growth and may cause us to curtail our operations or forgo sales,” states its SEC filing. “We and certain subsidiaries have substantial indebtedness, which subjects us to potential defaults, and could adversely affect our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or the biodiesel industry.” Significant debt and limited working capital: this sounds like reason enough to go public—to get cash flowing again. And while the CEO Jeffrey Stroburg does not receive a base salary from REG, he did receive restricted stock units valued at nearly $3 million in 2010. President and chief operating officer Daniel J. Oh last year received a base salary of more than $260,000, in addition to more than $2 million in restricted stock units.

So is it consolidation or democratization of the biodiesel industry, or can it be both? I’m interested in rational responses backed by reason, and alternative perspectives.