The Rumour Mill: VeraSun May Have A Buyer
Shares of corn ethanol giant VeraSun Energy Corp shot up 32% Friday in heavy trading, on speculation that the company is close to striking a deal to sell itself.
The company's practice of not buying corn requirements far ahead of time hit a brick wall when the June Midwest floods caused a major spike in grain commodity prices.
The company clearly panicked, and went long corn during the upswing, and now is riding on an undetermined loss on commodity trading and corn inventories. In its now-cancelled equity offering prospectus filed on September 16, VeraSun estimated third quarter corn costs would be $6.75 to 7.00 per bushel, and the company would record a third quarter loss of $63 to $103 million based on input and output prices and various assumptions including a New York Harbor ethanol price of $2.35 to $2.45 per gallon.
Currently, NYH ethanol is trading 9 cents over $2.24, or about $2.33/gallon. Chicago corn is around $5.30/bushel.
Likely interested parties include the usual suspects, Archer Daniels Midland (ADM) and Cargill, although the latter company may have lost its taste for corn ethanol as it helped create Biofuel Energy.
More likely suitors could be two foreign multinationals, both already in the ethanol and biofuel business in the USA. These include Cilion, backed by Virgin Fuels, part of Richard Branson's Virgin Group, and Khosla Ventures. Cilion has two corn ethanol plants under development in New York State.
Another potential suitor is Hong-Kong based Noble Group, which is an international agriculture and commodity trader with 2007 revenues of $23 billion US and $19.9 billion US in the first half of 2008. Noble has interests in several ethanol plants and markets ethanol for ten plants across the US.
If an oil company were to decide to take the plunge into ethanol refining, it probably would be Marathon Oil (MRO). Marathon partnered with The Andersons, a well-run grain handling, rail transport and ethanol production company, to open ethanol plants in Ohio, Indiana and Illinois. The partnership might be interested in becoming a major ethanol producer with a VeraSun acquisition.
Competitors of VeraSun such as Poet, Aventine and Hawkeye probably lack the deep pockets required to do a deal. They might hope for a bankruptcy sale of assets.
The company's practice of not buying corn requirements far ahead of time hit a brick wall when the June Midwest floods caused a major spike in grain commodity prices.
The company clearly panicked, and went long corn during the upswing, and now is riding on an undetermined loss on commodity trading and corn inventories. In its now-cancelled equity offering prospectus filed on September 16, VeraSun estimated third quarter corn costs would be $6.75 to 7.00 per bushel, and the company would record a third quarter loss of $63 to $103 million based on input and output prices and various assumptions including a New York Harbor ethanol price of $2.35 to $2.45 per gallon.
Currently, NYH ethanol is trading 9 cents over $2.24, or about $2.33/gallon. Chicago corn is around $5.30/bushel.
Likely interested parties include the usual suspects, Archer Daniels Midland (ADM) and Cargill, although the latter company may have lost its taste for corn ethanol as it helped create Biofuel Energy.
More likely suitors could be two foreign multinationals, both already in the ethanol and biofuel business in the USA. These include Cilion, backed by Virgin Fuels, part of Richard Branson's Virgin Group, and Khosla Ventures. Cilion has two corn ethanol plants under development in New York State.
Another potential suitor is Hong-Kong based Noble Group, which is an international agriculture and commodity trader with 2007 revenues of $23 billion US and $19.9 billion US in the first half of 2008. Noble has interests in several ethanol plants and markets ethanol for ten plants across the US.
If an oil company were to decide to take the plunge into ethanol refining, it probably would be Marathon Oil (MRO). Marathon partnered with The Andersons, a well-run grain handling, rail transport and ethanol production company, to open ethanol plants in Ohio, Indiana and Illinois. The partnership might be interested in becoming a major ethanol producer with a VeraSun acquisition.
Competitors of VeraSun such as Poet, Aventine and Hawkeye probably lack the deep pockets required to do a deal. They might hope for a bankruptcy sale of assets.
