Shares of Darling International Inc. (NYSE:DAR) jumped by nearly 15% Friday morning, after the rendering specialist announced that it has agreed to acquire the Rothsay subsidiary of Canada-based Maple Leaf Foods for roughly $613 million, with the deal expected to close by the end of 2013.
To put the size of this buy into perspective, Darling International Inc. (NYSE:DAR)’s total market capitalization currently stands at just $2.48 billion.
What’s more, as I mentioned less than two weeks ago, this represents Darling International Inc. (NYSE:DAR)’s second acquisition this month, after its purchase of Terra Renewal Services’ used cooking oil collection and industrial residuals operations.
But despite the new debt Darling International Inc. (NYSE:DAR) will incur, there’s plenty to like about this acquisition.
In total, Rothsay has a network of five rendering plants across Canada, employs around 550 people, and generated roughly CAD $85 million (or around $80.6 million U.S.) in EBITDA over each of the past two years.
And while the folks at Maple Leaf Foods can’t be particularly happy about losing this profitable business, the company does intend to use proceeds from the sale to pay down debt, allowing it to focus on its core food-products business.
Perhaps best of all, however, is that Rothsay also operates a high-quality biodiesel business in Quebec, which includes a plant capable of producing nearly 12 million gallons of biodiesel per year.
For those of you keeping track, remember Darling International Inc. (NYSE:DAR) and oil giant Valero Energy Corporation (NYSE:VLO) only last month opened the doors to their Diamond Green Diesel plant, the two companies’ joint biodiesel venture capable of outputting 137 million gallons per year. As I also noted at the time, while the DGD project will contribute only around 2% of Valero’s already-huge quarterly net income, Darling’s earnings going forward should increase by nearly a third.
Two takeaways from today’s news
In the end, though, Darling International Inc. (NYSE:DAR) shareholders have learned two significant things from today’s acquisition announcement.
First, while the new Rothsay biodiesel plant is significantly smaller than the Darling/Valero Energy Corporation (NYSE:VLO) DGD operation, this at least shows Darling International Inc. (NYSE:DAR) is serious about expanding its reach in the space. This, in turn, can’t sit well with existing biodiesel leaders such as Renewable Energy Group Inc (NASDAQ:REGI), which itself just completed a biodiesel acquisition of its own, with the 30 million gallon-per-year Mason City plant. That brings the annual capacity of Renewal Energy Group’s eight biodiesel plants to over 257 million gallons.
However, considering Darling International Inc. (NYSE:DAR)’s DGD plant alone can output more than half that amount, any concerted effort by Darling to truly continue boosting its presence in biodiesel could be a significant threat to more established players in the space.
Second, this is Darling International Inc. (NYSE:DAR)’s first international expansion, growing on its existing domestic footprint of 130 locations in 42 U.S. states.
In the end, considering the absolutely necessary long-term nature of the solidly profitable core rendering businesses Darling International Inc. (NYSE:DAR) operates, there’s no reason the company shouldn’t continue to handsomely reward shareholders while it grows stronger with each passing year.
The article 1 Huge Acquisiton for This Biodiesel Stock originally appeared on Fool.com.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Darling International.
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