- The stock price of Rice Acquisition Corp (NYSE: RICE) increased by 51.68% today. This is why it happened.
The stock price of Rice Acquisition Corp (NYSE: RICE) increased by 51.68% today as it went from a previous close of $10.10 to $15.32. Investors were responding to Rice Acquisition, a special purpose acquisition company (SPAC) focused on the energy transition sector, announcing an agreement to enter into a business combination with Aria Energy LLC and Archaea Energy LLC, which will create an industry-leading renewable natural gas (“RNG”) platform.
The combined company will be named Archaea Energy, with an experienced executive team comprised of leaders from Archaea LLC and Aria. And the deal is expected to close in the third quarter of 2021 and the combined company plans to be listed on the NYSE under the ticker symbol “LFG.”
RAC is led by former executives of Rice Energy, which merged with EQT (NYSE: EQT) to become the largest U.S. natural gas producer. And Daniel Rice IV, CEO of RAC, led Rice Energy’s growth from a start-up to the eventual $10 billion sale to EQT in 2017.
The business combination is expected to create a leading platform in the U.S. to capture and convert waste emissions from landfills and anaerobic digesters into low-carbon RNG, electricity, and green hydrogen. And Aria, a portfolio company of funds managed by the Infrastructure and Power strategy of Ares Management Corp (NYSE: ARES), is being acquired for $680 million and brings a comprehensive portfolio of operational LFG assets, best-in-class operating experience, and a deep inventory of greenfield LFG-to-RNG projects and electric-to-RNG conversion opportunities.
Archaea LLC is being acquired for $347 million and it brings leading RNG technology professionals, a deep inventory of LFG-to-RNG projects – including the world’s largest RNG plant currently under construction – an innovative commercial strategy, groundbreaking low-cost carbon sequestration, and negative-carbon LFG-to-green hydrogen development projects currently in the design stage.
The pro forma for the transaction, the combined company will have over $350 million of cash on the balance sheet – which provides ample liquidity to fund its pipeline of development projects and bridging the combined company to free cash flow generation starting in 2023.
The combined company will be led by a majority-independent board consisting of executives Daniel J. Rice, IV, Kyle Derham, Kate Jackson, Joe Malchow, and Jim Torgerson of RAC; Nicholas Stork, CEO of Archaea; and Scott Parkes of Ares.
Archaea Energy, the combined company, is tackling one of the world’s most important climate problems. And U.S. landfills are expected to grow from approximately 8 billion tons of waste in place in 2020 to 13 billion tons by 2050, which is expected to increase LFG emissions from 1.9 Bcf/d in 2020 to 2.8 Bcf/d by 2050. And capturing these emissions, comprised of ~50% methane and ~35% CO2, has the same environmental benefit as electrifying 75% of U.S. passenger vehicles.
LFG has a very predictable and 20-30 year production profile. And when coupled with continued growth in U.S. landfill waste for the next 20-30 years, creates 40-60 years of unparalleled LFG feedstock visibility. Compared to other renewable fuels, LFG-to-RNG developed by the combined company costs lower, more predictable, better for the environment, and more effective in reversing the impacts of climate change.
Aria Energy LLC is known a market leader in the North American LFG sector, having developed or constructed more than 50 projects over the last 25 years. And Aria is led by seasoned industry veterans including Richard DiGia, CEO, and has approximately 100 highly trained plant operators across the U.S. with a strong safety and environmental track record.
Under Ares’ 13-years of ownership, Aria has grown through internal project development and the strategic consolidation of several of the largest and most experienced companies in the LFG-to-renewable energy space, including Landfill Energy Systems, Innovative Energy Systems, and Timberline Energy.
Archaea Energy LLC was founded in 2018 by landfill owners and RNG technologists with the goal of building a cost-efficient solution for generating high-BTU RNG projects in the U.S. Archaea LLC’s development strategy and industry-leading gas separation expertise enables it to capture and convert LFG emissions with lower development costs. And its team helped design, build, or develop key gas processing systems for the majority of U.S. RNG facilities in operation today.
And Archaea LLC is actively tapping into a backlog of RNG demand via long-term fixed-price contracts, thus reducing risks from RIN price volatility, a key differentiator of its commercial strategy compared to other RNG developers. And Archaea LLC is also actively developing carbon sequestration projects and deploying on-site renewable power generation to further reduce the carbon intensity of its RNG to zero or negative. Archaea LLC believes it can develop green hydrogen from LFG and RNG at industry-leading costs by deploying proven technology.
Archaea LLC is currently majority-owned and controlled by Rice Investment Group, an affiliate of RAC. And RAC created a Special Committee, comprised of the independent directors of RAC, to negotiate the business combination of Aria, Archaea LLC, and RAC, including the purchase price for Aria and Archaea LLC. And the Special Committee engaged Moelis & Company LLC as its independent financial advisor and Richards, Layton and Finger, PA as its independent legal counsel for the business combination. 100% of Rice Investment Group’s equity ownership will be rolled into the transaction with no secondary proceeds, demonstrating confidence in the combined Company’s long-term value proposition. Plus the Rice family is also investing $20 million in the PIPE.
The business combination was recommended to RAC’s board of directors by the Special Committee, has been approved by the Board based on the Special Committee’s recommendation, and is expected to close in the third quarter of 2021, subject to certain closing conditions, including receipt of approval by holders of a majority of the RAC stock held by stockholders unaffiliated with Rice Investment Group.
In addition to the PIPE capital, RAC secured $340 million of debt commitments from Comerica Bank’s Environmental Services Department.
“With the combination of Archaea LLC and Aria, RAC has created a scaled and growth-oriented premier platform that will be guided by a seasoned management team positioned for even greater success through continued decarbonization of the natural gas grid.”
— Andrew Pike, co-head of Ares’ Infrastructure and Power strategy
“Early in our acquisition search we identified landfill gas (“LFG”) as the most predictable, cost-effective, and environmentally beneficial feedstock to help organizations achieve their carbon neutrality goals. We became determined to create a leading RNG platform, and I believe bringing together Archaea LLC and Aria goes beyond that; I think we’ve created a new paradigm in RNG development. The combination of these companies’ respective skills and assets instantly creates a proven, technology-driven LFG developer that’s operating at scale today with a deep inventory of highly economic, low-risk growth projects to meet the ever-growing RNG demand. The combined Company’s industry-leading growth is supported with innovative, long-term fixed-price offtake agreements to ensure it achieves its economic goals, while also helping its customers achieve their long-term climate goals. This places Archaea on a short list of companies that can generate sustainable and compelling risk-adjusted returns while significantly reducing GHG emissions.”
— RAC CEO Daniel Rice
“We are on a mission to transform the role of RNG in empowering organizations to decarbonize and achieve their sustainability goals. In Aria, we found an irreplicable asset base and a team who shares our vision to harness the power of RNG and help both landfill owners/operators and investment-grade buyers of RNG meet their sustainability targets. The new capital raised will accelerate the combined Company’s growth and solidify its leadership in the industry.”
— Nicholas Stork, co-founder and CEO of Archaea LLC and CEO of the combined company
Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.