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Darling International Inc. (DAR), Valero Energy Corporation (VLO): One Mammoth Acquisiton for This Biodiesel Stock

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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.

Darling International Inc. (NYSE:DAR)Then again, a quick check of Darling International Inc. (NYSE:DAR)’s balance sheet in its most recent quarterly report shows that the company held a little over $133 million in cash, with roughly $250 million in long-term debt at the end of Q2, so it’s no surprise Darling’s press release states that it intends to finance the transaction through a new secured revolving credit facility and a new term bank loan. Both new facilities will be entered into in connection with the closing of the transaction.

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.

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