Sioux Falls Argus Leader, SD
07-24-07
3 ethanol plants to boost VeraSun
CEO: Growth will make firm more efficient
By Kevin Dobbs
kdobbs@argusleader.com
VeraSun Energy Corp., already among the nation's largest ethanol producers, on
Monday confirmed it will spend $725 million to acquire three more production
plants, allowing the company to soon make a billion gallons of the alternative fuel
annually.
The acquisition from ASAlliances Biofuels LLC of Texas will be paid for with $250
million in cash, $200 million of equity and $275 million in financing. It will give
Brookings-based VeraSun new plants in Albion, Neb.; Bloomingburg, Ohio, and
Linden, Ind.
"This is a unique opportunity to acquire immediate production and revenue at a
cost similar to that of building new facilities," said Don Endres, VeraSun chairman
and chief executive officer. He said the company had spent the past year
studying possible acquisitions.
The deal is expected to close within 45 days.
Tom Manuel, ASAlliances Biofuels chief executive, said his company's workers,
who will become VeraSun employees, are in good hands. "We believe they are
the premier platform company in the renewable fuels industry," he said of
VeraSun.
The Linden plant will open this month, followed by the Albion plant before the end
of the year and Bloomingburg by early 2008. The three plants will have a
combined annual production capacity of 330 million gallons - 110 million each.
VeraSun currently has 340 million gallons per year of production capacity. But it
also has another 330 million gallons per year under construction and
development.
In all, VeraSun's production capacity will hit about 1 billion gallons by the end of
2008.
On Poet's heels
VeraSun, whose flagship plant is in Aurora, will be in position to challenge Sioux
Falls-based Poet to be the nation's largest ethanol producer.
Endres said the billion mark - which Poet will hit this fall - is "a benchmark for
VeraSun and represents a maturing of the renewable fuels industry."
He said a larger VeraSun can spread production management and distribution
responsibilities over more plants and make the company more efficient while
continuing to grow and capitalize on the nation's seemingly insatiable demand for
alternative fuel.
In addition to Aurora, VeraSun has plants in Fort Dodge and Charles City, Iowa.
It has more plants under construction and development in Hartley, Iowa;
Welcome, Minn., and Reynolds, Ind. All the plants, company officials said, are
located near rail lines that will make it possible for VeraSun to deliver ethanol
across the country.
With the $275 million in financing needed to close the acquisition, VeraSun's
debt-to-capitalization ratio rises from about 29 percent to 40 percent. That puts
the company close to normal limits and makes another major acquisition this
year unlikely. But in a conference call, Chief Financial Officer Danny Herron
didn't rule out future deals.
"We still have flexibility to go up if we needed to," he said.
Poet, formerly Broin Cos., will become the world's largest ethanol producer when
its 21st plant opens this September in Indiana, stretching its production capacity
to 1.1 billion gallons annually.
It will overtake agribusiness giant Archer Daniels Midland, which has 1.07 billion
gallons of capacity.
Poet is private. ADM and VeraSun are publicly traded.
"We have just been on a continuous path of steady growth in this industry," Jeff
Broin, Poet CEO, said recently.
As a result, farmers have dramatically shifted their focus to corn, which is used to
produce ethanol.
Corn in demand
The soaring demand has created price fluctuations in corn and, by extension,
ethanol-blended fuel, livestock feed and food at the grocery store - all of which is
tied to corn. A bushel of corn in South Dakota cost $3.70 in early June, near
record levels.
Many in the corn and ethanol industry say market demands will even out prices,
and they point to farmers' response this summer and the resulting drop in prices
as evidence.
The U.S. Department of Agriculture reported earlier this month that South Dakota
farmers planted 5 million acres of corn, part of an almost 93-million-acre national
crop, the largest since World War II. Local prices fell about 60 cents per bushel
on the news.
But the ethanol industry remains relatively new, and future demand - if today's
growth pace continues - could cause lasting price problems, some economists
say.
"That's just going to create volatility like we haven't seen," Mike Duffy of Iowa
State University said when the report was released.
The United States has 122 ethanol plants that can produce 6.4 billion gallons
annually, according to the Renewable Fuels Association, which tracks the
industry. More than 80 plants are under construction - new plants or expansion of
existing ones - and when completed, that work will raise the nation's capacity to
12.6 billion gallons.
Reach Kevin Dobbs at 331-2308.