Tuesday, February 10, 2009

Horse of a Different Color

A few weeks back I suggested Poet Energy, a privately-held ethanol producer based in Sioux Falls, SD, could be first in line to acquire the assets of bankrupt VeraSun Energy Corp. (VSUNQ: OTC/BB). Subsequently Reuters quoted Poet CEO, Jeff Broin, as serious buyer.

That was all too quickly spoken.

Another bidder has beat Broin to the punch, offering $280 million for five of VeraSun’s ethanol plants located in South Dakota, Iowa and Minnesota. The purchase of inventory could boost the price further. VeraSun is setting up a bidding process to ensure this so-called “stalking-horse bid” is the best VeraSun can get. Bidders have until mid-March to get their bids posted.

No matter how fervent an ethanol advocate might be, a bidder would have to approach the purchase of a money-losing ethanol plant with some trepidation. So it is a bit surprising that VeraSun’s suitor is a major oil and gas refiner.

Yes, Valero Energy Corp. (VLO: NYSE) is prepared to “pony” up $280 million in hard earned petrodollars to buy five plum ethanol plants in the Midwest. Yet just a few months ago Valero’s CEO Bill Kless was on the stump at the National Petrochemical and Refiners Association, blaming ethanol production for high food prices. The thing is, Valero is one of the top buyers of ethanol and around its board room table it must make sense to own the “still.”

There are quite a few other VeraSun assets still in play, including plants VeraSun acquired from U.S. BioEnergy, a facility in Marion, SD and plants in Nebraska, Ohio and Indiana. The whole kit’n kaboodle of property, plant and equipment was valued at $2.4 billion in September 2008, the last time VeraSun filed financial statements.

Could there be a refiner willing to take the entire complex? Now that would be a horse of different color!


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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