Valero acquires VeraSun plants

By Bryan Sims | April 14, 2009
In March, Valero Renewable Fuels, a subsidiary of Valero Energy Corp., emerged as the winning bidder, purchasing seven ethanol plants from VeraSun Energy Corp. for $477 million. A Delaware bankruptcy court approved the auction sale. The deal was expected to close April 1.

Collectively, Valero has acquired annual production capacity of 780 MMgy. The aggregate purchase price of $477 million represents approximately 30 percent of the plants' replacement costs. The purchase price also excluded approximately $75 million in working capital. Credit Suisse advised Valero on the transaction.

Valero Renewable Fuels submitted a bid at a base price of $350 million for five plants in Aurora, S.D.; Charles City, Iowa; Fort Dodge, Iowa; Hartley, Iowa; Welcome, Minn.; and a development site in Reynolds, Ind. Valero also successfully bid on an ethanol plant in Albert City, Iowa, for $72 million, formerly owned by U.S. BioEnergy Corp. and acquired by VeraSun, and a plant in Albion, Neb., for $55 million that VeraSun acquired from ASAlliance Biofuels. Valero plans to operate all of the plants through its subsidiaries and to keep VeraSun management staff at each plant location.

Dougherty Funding LLC submitted a credit bid of $93 million for VeraSun's 110 MMgy plant in Marion, S.D. A group of lenders led by AgStar Financial Services submitted a credit bid of $324 million for the remaining "US BioEnergy Group," which included ethanol facilities in Central City and Ord, Neb.; Dyersville, Iowa; Hankinson, N.D.; Janesville, Minn.; and Woodbury, Mich. A group of lenders led by West LB AG submitted a credit bid of $99 million for the remaining "ASA Group" facilities, which consisted of ethanol plants in Bloomingburg, Ohio, and Linden, Ind.

AgStar Financial Services said the six plants it bought "will remain in idle mode for an estimated 60 days while buyers are secured for these assets." However, AgStar said it has already received interest in the plants from potential buyers, although the company didn't disclose specific parties.

Archer Daniels Midland Co. and Cargill Inc. also participated in the bidding with Valero for the plants.

The transaction solidifies Valero's initial entry into the ethanol marketplace as a leading buyer of ethanol for blending in its gasoline, and its purchase of the plants is expected to give Valero a dedicated supply of ethanol.

Valero's interest in acquiring the plants hasn't been seen as a positive move by some ethanol advocates. One of those is The International Institute for Ecological Agriculture, a promoter of permaculture and alternative fuels. According to David Blume, IIEA executive director, Valero's offer to participate in the ethanol market demonstrates the "end-game" strategy for last year's aggressive food-versus-fuel propaganda and price war manipulation campaign implemented by the international oil cartel.

"This is really the first time that somebody from the petroleum complex has made a significant investment in the ethanol industry," said Todd Alexander, a partner with law firm Chadbourne & Parke LLP. "There have been other oil majors such as Marathon Oil Corp. that have made investments in the industry by way of joint ventures and partnerships, but none of this magnitude."

"It definitely raises very interesting questions as to whether an industry that has been agriculturally based will just become one additional segment of the overall petroleum complex," he said. "Although I think it's too early to say that."

Other ethanol companies such as Poet LLC, ADM and Cargill may be in a position to acquire financially distressed ethanol assets in the future if they fit their business models, Alexander said.