Late Wednesday afternoon, Pacific Ethanol Inc. (NASDAQ: PEIX) announced that it had entered a definitive merger agreement with a Midwest-based producer of ethanol, Aventine Renewable Energy Holdings, in an all-stock deal valued at approximately $190 million. The combination will more than double Pacific Ethanol’s production capacity and create the fifth-largest ethanol maker in the United States.

Aventine, like Pacific Ethanol, was a high-flying, NYSE-traded alternative energy company in the middle of the last decade. In 2009, Aventine filed for bankruptcy protection and began trading in the over-the-counter market. The company emerged from bankruptcy in 2010.

Thin margins due to the falling price of crude have stressed ethanol makers in the second half of 2014, which is probably what made this deal attractive to both parties. Pacific Ethanol got a good price and Aventine survived.

Pacific Ethanol will issue approximately 17.75 million new shares to replace existing Aventine shares and assume about $135 million in Aventine’s debt. The transaction is expected to close in the second quarter of 2015 and Pacific Ethanol’s shareholders will own 58% of the combined company.

The production capacity of the combined company totals 515 million gallons a year, less than half the capacity of industry giants Archer Daniels Midland Co. (NYSE: ADM), Poet LLC and Valero Energy Corp. (NYSE: VLO), all of which have capacities above a million gallons a year.

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