Monthly Archives: May 2007

I found this article in the Wall Street Journal referring to rumors of an ADM buyout. Although I missed out on this article when it was timely, it has some interesting notions in hindsight.

I’ve written a number of posts (What is ADM’s Plan?, ADM and Metabolix team up for plastics) on ADM and its future prospects. So the notion of an ADM buyout seems a bit preposterous (but nothing is impossible now-days). The reason I think its preposterous is because there aren’t a lot of companies that could (1) swallow that big of a company or (2) get a great deal of synergies out of it. It would be akin to the HP-Compaq merger (which despite all the controversy didn’t destroy HP; the lack of one extra butt to kick probably helped its prospects).

But the most interesting part of the article is its insinuation of potential acquirers being Alcoa and Dow Chemical. Since this March 20th article, Dow has had an internal scandal on high-level officials attempting to sell the company. Alcoa recently announced its intentions to purchase Alcan. So while the ADM buyout rumor is almost undoubtedly false (until its true that is), there could have been some truth to the notion of a transaction being made.

It’s a bit of a fun exercise to try and consider who would actually buy ADM. Some of them come to mind:
1) Cargill – Probably no synnergies, but they would be able to best leverage their existing assets
2) PE Company – I’m sure ADM has enough fat to cut to make a LBO worth while
3) International agricultural company (although who would be big enough to eat ADM?)

The end result is that there aren’t any apparent suitors for this kind of a deal. Even though the chemical companies could use ADM’s products (agricultural plastic monomers, etc) growing and transporting crops is its own separate skills set. This wouldn’t be worthwhile for such a large company like a Dow or Alcoa to try to take on.

A more plausible scenario would be ADM selling off various business units to focus on one thing. We’ll see if there are any suitors for their biofuels business.

These are some great technologies that I’ve read about recently that have some high-impact implications:

Non-Polluting City: Liuzhou
This is a proposed Cradle to Cradle city design by William McDonough Partners. Its design takes into account the natural water, wind, and light flows of the landscape and utilizes them in the natural layout of the city.

Robust Grid
American Superconductor (Nasdaq: AMSC) is installing its superconducting wire into the New York City power system. The technology provides more power bandwidth and improved redundancy than copper wires. The vision is, over time, create a grid that is not as fragile and prone to black outs s our current system (I guess if you think about it, it’s pretty stupid that we still have blackouts every year). Read the Technology Review Article.

Hydrogen from Starch
Researchers have developed a system for efficiently producing hydrogen from starches. Hydrogen is a very energy-rich chemical and could act as a great fuel source. The primary drawback, however, has been the high energy input in its manufacture. This breakthrough has identified a means of producing hydrogen and CO2 (considered neutral if from a biological source) . The research would focus on developing more efficient enzymes to increase the scalability of such a system. Further interest would be on using a non-food source of the base material instead of corn starch or the like. Read the Technology Review Article.

Biotech Corn
Researches at Michigan State have engineered corn to naturally produce the enzymes needed to artificially break down the contained cellulose content. This would consolidate the amount of pre-processing needed before fermentation into an end fuel (ethanol) thus reducing the overall delivery cost. Read the Technology Review Article.

Dow Jones report on the City of San Jose’s initiative to attract more cleantech companies.


Imperium Renewables has filed its registration statement (S-1) for a $345 Million IPO. Morgan Stanley and Lehman Brothers are underwriting this fund raising effort. It will trade under the ticker IMPR, however, it does not yet come up under an SEC filing search.

Imperium Renewables is the largest biodiesel manufacturer in the U.S. It currently operates a small, 5 Million gallon refinery in Seattle. It is currently constructing a 100MM gallon/year refinery in western Washington State. Imperium was founded by John Plaza and is run by venture capitalist Martin Tobias. They have received venture investing from Nth Power, Technology Partners, Vulcan Capital, BlackRock Investment Management, Capricorn Management and Silver Point Capital.

As I opined on in an earlier post, this large of an IPO seems a bit premature given the current refining capacity of this company. The issue, in my opinion, is that this stock will languish until the company is able to bring on more capacity and achieve more sales. The Puget Sound Business Journal reports that the company executives do not expect to generate earnings for some time:

Officials at the three-year-old company said Imperium has a “limited operating history” for investors to judge its business prospects. It’s currently building a Grays Harbor facility, which is planned to open in July.

“We expect to incur increasing net losses and negative cash flow from operations through at least the end of 2007 and possibly in future periods as we build new production facilities, hire additional employees, apply for regulatory approvals, continue development of our technology, expand our operations and incur the additional costs of operating as a public company.”

Any stock is priced to reflect their current and future earnings. At this point, the company doesn’t make any earnings from their refining operations. In other words, the valuation of this company seems to be inflated to me on a cash-flow basis (read: I could be wrong, but this stock probably isn’t worth owning at the moment). Given the amount of regulatory compliance costs, an IPO is a lot for a young, struggling company is really difficult to manage. They’re not even good at what they’re supposed to be good at to generate revenue. The company is only a little over two years old and their venture investments are even younger. For them to IPO so early would seem to indicate one two things: either their investors want to get their money out now for some unforseen reason, or they simply need a lot of money to grow now and this is their way of doing it. There are many alternatives to going public that don’t come with so many strings. It seems a bit irresponsible to me that they would choose to go public before the company is really operating at any kind of sustainable rate.

I’m probably being overly dramatic in this opinion; I’m sure everything will work out fine. However, as I stated earlier, the market hasn’t been very receptive of bad IPO “products”. Companies that do not have a strong handle on establishing themselves in the marketplace have not been well received by the market (i.e. Vonage, XM/Sirius). So the timing of this filing seems premature. They could at least have waited until their refinery is up and running at high capacity before they did an equity issue. But perhaps, this is the game that is unfolding before us.

So it appears that Imperium is going all-in.

See Imperium’s Press Release.

This is the energy department’s chart of current gas prices:

It’s important to note about this chart is the extreme cyclical nature of these price changes. Over time, the volume is going up. However, the cycle seems to swing extremely far in each dimension. While I understand that there are seasonal demand shifts, but a 50% swing seems very extreme.

Some more on high prices:
DOE: U.S. Gasoline Prices
CNN: NJ with lowest price in U.S.


Last week, Southern California Edison reported that they are seeking approval to build a full-scale 600MW clean-coal power generating facility.

A typical coal plant burns coal to generate enough heat to convert water into steam which then turns a steam generator. Edison’s proposal, however, would use a coal gasification process in order to produce Hydrogen. Hydrogen would be used to generate electricity and heat via a gas turbine (similar to a natural gas cogeneration system). The heat from this turbine can be used to boil water into steam that can be used as an input to additional steam generators.

Below is a diagram of their proposed system:

The resulting CO2 from this process could be sequestered in unminable coal beds, aging oil wells (for CO2 injection), or a deep saline formation.

This proposal would be a great opportunity for Edison and citizens. I have witness first hand the results of both bad air pollution and rolling black outs in Los Angeles. Any technology that could begin to alleviate both would be welcome. From a broader perspective, this proposal could be a glimpse into the future of what our energy future could be. A design that addresses all facets of serving the public – including clean air, reliable power, and some new jobs.

Chevron has reportedly sold its stake in Dynagy, an independent power producer. Their stake is valued at approximately $895Million. This divestiture is said to be part of an effort to focus on Chevron’s core focus areas.

This doesn’t make sense.

Both power and oil are at record highs. All the oil companies are making profits hand-over-fist. Why would they, at this point, reduce their asset diversification? Particularly with its portfolio of assets are doing well?

While I don’t know for sure, I have some guesses:

1) Chevron wants to get into the biofuels production game and needs some start-up cash
2) They want to expand some additional in-house refining capacity
3) They need to divest some non-oil & gas assets and shore up their balance sheet to make themselves look good as an acquisition target. This seems a bit crazy at the moment, but as it stands, a merger of Chevron and an international player (CNOOC, Total, Valero, Aramco or others) could make them a more formidable competitor with the likes of BP and ExxonMobil.

AutoWeek is reporting that GM has the Chevy Volt concept into a full production program.

AutoWeek: Prius Fighter

This is a great sign for GM. It seems as though GM couldn’t get anything right on the alternative technology front. The Prius, as ugly as it is, has stolen the show. The fact that Toyota still makes its low volume Prius in Japan, but opens up a new factory in San Antonio to make a full-sized gas-guzzling Tundra seems to go unnoticed (Toyota stock remains down due to slow Tundra sales). While GM has done a good job of getting FlexFuel vehicles on the road, the Volt is the first real design innovation that it has shown to the world since the EV1. While I’ve written about the Volt’s features in other postings, this news is a great sign of success for GM.

Here’s some notes from the article:


Burns declined to estimate the project’s cost. But GM Vice Chairman Bob Lutz predicted this year that the design, engineering and tooling would cost at least $500 million.

GM wants to build the Volt in the United States, says a source close to the project. The assembly plant in Lordstown, Ohio, which currently builds the Chevrolet Cobalt, is said to be the leading contender.

and goes on to say


GM has not confirmed a production date for the Volt. The company generally needs about 36 months to bring a vehicle to production once the design is frozen, but it’s not clear how soon that point could be reached.

and

The Volt is versatile enough to feature a variety of green powertrains. GM probably would sell most fuel cell Volts in China.


Learn more about the Volt from GM
.

I have developed an interest in ZeaChem’s technology platform. ZeaChem is a venture-backed biofuels company located in Menlo Park, California. They are backed by Mohr Davidow Ventures, a silicon valley venture firm that focuses on investing in high impact companies that can continue to be relevant 30 to 40 years into the future. Their website states the following about their process:

The ZeaChem technology will produce fifty percent more ethanol per ton of feed than the current best-in-class technology. Our higher yield dramatically improves process economics, allowing farmers to get more ethanol out of each acre of biomass crop.


The ZeaChem website notes that they can, through three primary processes, produce ethanol (and presumably other bio-alcohols) with the entirety of plant material – not just the fermentable sugars. Their diagram above, from the ZeaChem web site, shows this proposed pathway. While I don’t know anything about their company’s technology, I have some good guesses on what they are proposing.

The separation step on the left appears to be a separation between lignin and cellulose materials from a plant. It’s not clear how this would be achieved either through a chemical steeping or a mechanical grinding and extraction (wet or dry milling). However, given the upstream processes, I would guess that a wet milling process would be used. This is because you can more easily break up and separate the starches from lignin from a chemical extraction than with a mechanical grinding process. So this sounds like a good guess.

The top process appears to be a standard fermentation of starches and sugars. This could be accomplished directly after the (liquid) separation of lignins. This could essentially be managed continuously in a semi-batch fashion. The output of this fermentation process is an alkyl-ester. Acetic acid is a good option for this, but I presume, given the right organism, a number of alkyl esters/acids could be produced. The molecular diagram of acetic acid is below:

The bottom process appears to be a thermoprocessing of the lignins. This appears to be a rather straight-forward gasification process. Admittedly, I don’t have any first-hand experience with gasification processes (unlike with corn milling). However, I would presume that a Pyrolysis and gasification of the lignins should break down this biomass into hydrogen and a carbon monoxide (syngas). While this would be better managed with a solid form, a liquid form as I suggest above would probably be pretty manageable too. A mechanical filtration or dewatering/mechanical press might be adequate for this process too. This explains the production of steam, hydrogen, methane, and other high-value gases. Apparently, ZeaChem wants to use the hydrogen as an input into the final process and use the rest as an energy source (which is a great idea).

The right process, hydrogenolysis, seems to be the butt kicker. I don’t know anything about this process. But as I have read in my research, it refers to the addition of hydrogen molecule across a C-O bond. This is a solid-catalyzed process, as most hydrogen gas processes are. Pd is a good bet. However, a better, cheaper catalyst could be the real IP that makes this process work. The alkyl esters produced in the fermentation process are the substrate of this process. From what I can presume, the hydrogen produced in the bottom thermoprocess is used to remove the acidic oxygen group from the alkyl ester and to add a hydrogen to the C=O bond. If acetic acid is the alkyl ester then the resulting product is ethanol. If the ester is propanoic acid, then the end product is propanol. If the ester is butanoic acid, then the end product is butanol. This is a great feature in that it would give a ZeaChem plant the ability to produce one of these products given the market demand for each one.

So I would surmise there are a few points of development that ZeaChem will be focusing on:
1) A set of catalysts that is inexpensive, but efficient at facilitating the hydrogenolysis process for potential alkyl esters to make a variety of end alcohols
2) A robust manufacturing process to quickly and cleanly separate starches and lignins from a variety of sources.
3) A set of biological organisms that will easily and efficiently ferment starches and sugars into a variety of alkyl esters (acetic, propanoic, n-butanoic acids)

If I’m at all accurate in this analysis, then ZeaChem is on to something really big. These points of difficulty – catalysts, integrated manufacturing, biotech organisms – have a huge intellectual development efforts behind them. I would surmise that the founders of this company have developed something intriguing to make this process happen (I’d imagine in the fermentation organism, catalysis, or success in the overall pathway). Their future should be bright if they are able to scale this up efficiently and cost-effectively.

EnerNOC’s IPO went very well today.

RedHerring: EnerNOC jumps in Nasdaq debut

Yahoo!Finance Stock Chart

EnerNOC’s stock closed up more than 20% on its first day on the market. EnerNOC makes energy management equipment for commercial and industrial customers. Their IPO price was slated at $26/share. It opened today at 30.76, peaked at 32.43, and closed at 31.13. Unlike many other energy-related IPO’s, the demand management companies generate strong revenues and are great growth opportunities (unlike IPO products like Vonage or Burger King).