Cash Infusion Expected for Alon USA

DALLAS -- Alon USA may get a significant infusion of cash from Israel-based FIMI Fund, which is reportedly conducting advanced negotiations to invest $60-$70 million in the U.S. energy company.

According to a report by Israel’s Calcalist newspaper, the negotiations have been ongoing for several months and are nearing an end. Half of the sum will be transferred to Alon in exchange for stock options, while the rest will serve as a loan, the report stated.

Yishai Davidi, who manages the FIMI Fund, has traveled to the U.S. multiple times with members of his staff to conduct due diligence. Throughout 2010, FIMI invested a total of $200 million in different companies, the newspaper reported.

Calcalist noted that the FIMI Fund's investment in the company is the result of Alon’s major troubles in the U.S. refinery industry. During the first nine months of 2010, Alon USA lost $100 million, in addition to the $90 million it lost in 2009. These heavy losses were caused primarily by a series of very expensive acquisitions at a particularly problematic time.

One example of the poor timing was Alon’s purchase of a refinery in Krotz Springs, La., for $400 million. The company completed the transaction during the second half of 2008 when oil prices were high, despite analysts' warnings of the expected blow to large refineries due to the high costs of raw materials, according to the report.

When Alon USA was issued in the U.S. in 2005, it was valued at $725 million, and within a few days its value shot up to $950 million. Given the financial crisis, along with a recent blast at one of the company's refineries in Dallas, the company is currently valued at only $300 million.

In March of this year, Moody's Investors Service published a list of 283 companies that its economists believed would become insolvent, and Alon USA was listed, the report noted.

Last August, when the company's semi-annual reports were published, and due to its dwindling funds and transition from profits to losses, Alon USA announced a rights issue of $40 million -- $30 million of which would be funded by the owners. At the conclusion of the third quarter of this year, the refinery segment marked an operational loss of $52 million, and during the first nine months of the year, the company's losses reached nearly $100 million.

Alon USA, which is traded on the New York Stock Exchange, controls five refineries and manufactures asphalt that incorporates recycled tires. Under the brand name FINA, the company provides fuel to 1,000 gas stations and is licensed to establish and operate 7-Eleven stores. At present, the company operates 306 stores under the 7-Eleven brand name.

Unlike its track record in the faltering refinery market, Alon enjoys operational profits of $9 million per quarter in the retail market, and similar profits in the asphalt industry. To leverage the success of this sector while improving its financial state, the company is planning a stock issue of its retail activities, including its c-stores and gas stations at a value of $180-$200 million. The company has not yet selected an investment banker to conduct the stock issue, the report said.

Alon USA is controlled by Alon Holdings, which also controls Blue Square, Israeli gas station operation Dor Alon and real estate company Rozbar, which operates mainly in Europe.

Founded in 1997, FIMI is Israel's first dedicated and mezzanie buy-out fund. It has created a successful track record of more than 50 major transactions valued at more than $1 billion, according to the company’s Web site. With more than $600M equity available for new investments, FIMI is able to finance transactions of every scale, the site stated.