Vera To Jack It In?

VeraSun Energy Corp. said late Thursday that it has retained Morgan Stanley to help it "evaluate strategic alternatives."

VeraSun shares plunged to $1.33, an all-time low, and lost nearly three-quarters of their value Wednesday after the company began a public offering of 20 million shares and said it expects to post a third-quarter loss between $63 million and $103 million. The stock had traded as high as $17.75 in December.

The company late Thursday abandoned the stock offering, which comes as little surprise considering the sharp share price drop.

VeraSun, founded in 2001, went public in June 2006 amid perfect market conditions. Corn was cheap, gas was expensive and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.

It appears that the company locked in much of its corn requirements around $7/bushel, leaving it unable to take advantage of the commodity's recent fall to $5-5.50/bushel, and facing crippling margin calls.

Poet or ADM may be potentail buyers, but any aquisition of VeraSun would give them close to a quarter of the US ethanol market, triggering competition concerns.

Ethanol producers have so far successfully lobbied to keep the current federal mandates and subsidies for renewable fuels. However, agriculture secretary Ed Schafer said last week that the industry needed to become "self sustaining" and wean itself from subsidies.

A removal of the 46c a gallon tax break on ethanol could spell the end of the industry overnight.