BioFuel Energy's (BIOF) 200% Surge Is a Hoax

September 14, 2012 11:45 AM EDT Send to a Friend
Shares of BioFuel Energy Corp. (NASDAQ: BIOF) continue to surge, sparked by a 13D filing last week showing that hedge fund titan David Einhorn raised his stake in the company through his Greenlight Capital fund. While shares are up over 200 percent from $3 to $9 following the news, looking closer at the fling suggests that the new shares were given to Mr. Einhorn and his Greenlight Capital for free pursuant to a "true-up" agreement.

From Greenlight's 13D/A - Sept 6, 2012:
In addition, certain of the Reporting Persons acquired additional shares of Common Stock on August 27, 2012 for no additional current consideration in accordance with the terms of an ownership “true-up” agreement entered into among certain principal stockholders of the Issuer, pursuant to which certain management members and affiliates of Greenlight Inc. and another principal stockholder of the Issuer agreed to exchange Units, shares of Common Stock or cash at a future date, depending on the Issuer’s performance. This arrangement is more fully described in the Issuer’s Registration Statement on Form S-1/A, filed with the Commission on April 23, 2007 and in subsequent periodic reports filed by the Issuer under the Securities Exchange Act of 1934, as amended.

From S1/A April 23, 2007:
At the time of formation of the LLC, our founders agreed with certain of our principal stockholders as to the relative ownership interests in the company of our management members and affiliates of Greenlight Capital, Inc. and Third Point LLC. Certain management members and affiliates of Greenlight Capital, Inc. and Third Point LLC agreed to exchange LLC membership interests, shares of common stock or cash at a future date, referred to as the ‘‘true-up date’’, depending on the company’s performance. This provision functions by providing management with additional value if the company’s value improves and by reducing management’s interest in the company if its value decreases. In particular, if the value of the company increases between completion of this offering and the ‘‘true-up date’’, the management members will be entitled to receive LLC membership interests, shares of common stock or cash from the affiliates of Greenlight Capital, Inc. and Third Point LLC. On the other hand, if the value of the company decreases between completion of this offering and the ‘‘true-up date’’, the affiliates of Greenlight Capital, Inc. and Third Point LLC will be entitled to receive LLC membership interests or shares of common stock from the management members.

So essentially, shares were taken away from management and given to Greenlight because the value of the company decreased.


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13Ds, Hedge Funds, Momentum Movers, Trader Talk

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Daniel Loeb, Greenlight Capital, David Einhorn, Third Point LLC, Hedge Funds, 13D, S1

Comments

not a hoax
Z on 2012-09-16 13:12:47
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The Einhorn news simply brought this company to light. The news itself was not that relevant (what's 70k shares anyway for a billionaire), but brought attention to both 1) the fact that this company is on his radar and 2) the fact that it may be undervalued due to the dramatic drought-driven decline


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