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Vertex Energy Shares Rise 36% on Sale of Oil Collection and Recycling Portfolio

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Vertex Energy shares climbed to a new 52-week high after the company reported it entered into an agreement to sell its used motor oil collection and recycling assets to Safety-Kleen Systems for $140 million.

Vertex Energy, Inc. (VTNR:NASDAQ) yesterday announced that "it entered into a definitive agreement to sell its portfolio of used motor oil collection and recycling assets to Safety-Kleen Systems Inc., a subsidiary of Clean Harbors Inc., for a total cash consideration of $140 million, subject to working capital and other adjustments."

Vertex Energy stated that the transaction remains subject to approval by its shareholders along with ordinary closing conditions and regulatory approval and is expected to close in Q3/21.

The company explained that the agreement provides that Safety-Kleen will purchase the firm's Marrero, La., used oil refinery, the Heartland used oil refinery in Ohio, the H&H and Heartland used oil collections business, the East Texas Nickco oil filters and absorbent materials recycling facility, and the Baytown, Tex., Cedar Marine terminal. The firm indicated that in Q1/21 these assets collectively generated $4.5 million in operating income and $5.7 million in adjusted EBITDA.

Vertex Energy stated that when the transaction is completed it expects to receive total net cash proceeds totaling approximately $90 million after retiring $6.3 million in debt and paying other financial obligations and transaction fees. The company advised that it plans to use a portion of the gross cash proceeds to exercise an option to repurchase Tensile Capital's interest in the Myrtle Grove facility located in Belle Chase, La., giving it a 100% ownership in the property.

The company added that the transaction will help provide funding for a new pretreatment unit at Myrtle Grove and that it intends to begin building a renewable feedstock pretreatment unit there starting in Q4/21. The firm stated that it anticipates that the project will initially cost about $40 million and should be completed by YE/23 and when finished will contribute around $75-100 million in incremental adjusted EBITDA each year.

Vertex Energy's President and CEO Benjamin P. Cowart commented, "the transaction will advance our strategy of becoming a leading pure-play energy transition company of scale…First and foremost, these asset sales will allow for a full recapitalization of our balance sheet. After retiring costly term debt and other financial obligations, we expect to bring approximately $90 million of cash into our business at the close of this transaction."

Cowart continued, "Over the near-term, we intend to allocate net cash proceeds from the transaction toward both organic and inorganic growth opportunities, consistent with our stated strategy…we plan to use a portion of the net cash proceeds to fund initial development of a pre-treatment technology at our Myrtle Grove facility, one that we expect will increase our ability to process and market a wider range of cost-advantaged renewable feedstocks. We believe the pre-treatment of second-generation organic feedstocks have the potential to contribute significant, incremental cash flow from operations upon planned completion by year-end 2023"

"During the past decade, Vertex has assembled one of the leading independent UMO collections and re-refining networks in the United States…After careful consideration, our Board of Directors concluded that the sale of these assets to Safety-Kleen was the optimal outcome for all shareholders, given our focus on pursuing higher-growth, higher-margin energy transition businesses. Safety-Kleen recognized the value of our black oil recycling assets, resulting in a compelling all-cash offer," Cowart added.

Vertex is a specialty refiner of alternative feedstocks and marketer of high-purity refined energy products based in Houston, Tex. The company has processing operations in Texas, Louisiana and Ohio. The firm stated that it is one of the largest processors of used motor oil in the U.S., having the capacity to process greater than 115 million gallons per year. The company stated that "it also co-owns a facility, Myrtle Grove, located on a 41-acre industrial complex along the Gulf Coast in Belle Chasse, La., with existing hydro-processing and plant infrastructure assets, that include nine million gallons of storage." Vertex added that it is a key North American supplier of Group II+ and Group III Base Oils for the lubricant manufacturing industry.

Vertex Energy began the day with a market cap of around $531.4 million with approximately 51.74 million shares outstanding and a short interest of about 4.3%. VTNR shares opened 34% higher today at $13.7635 (+$3.4935, +34.02%) over yesterday's $10.27 closing price and reached a new 52-week high price this afternoon of $14.19. The stock has traded today between $12.15 to $14.19 per share and is currently trading at $13.99 (+$3.72, +36.22%).


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