Good article. Biofuel Energy completed its IPO today and met with a tepid response:
Biofuel Bomb
Ethanol IPO is latest in line of investment stink bombs.
June 14, 2007
By Scott Martin
Maybe oil is better than ethanol, after all—on Wall Street at least.
That’s what investors seemed to be saying after Biofuel Energy made a lackluster debut on the Nasdaq stock market on Thursday. It was the fourth recent ethanol IPO to fall short of all the hype and promise that has been heaped upon the alternative fuel.
Biofuel Energy shares fell below their offering price of $10.50—skidding as low as $10.05—before recovering slightly to reach $10.62 in midday trading.
The company’s debut was the latest sign of trouble for the ethanol producer. It had originally planned to offer 9.5 million shares at $16 to $18 each to raise up to $161.5 million. Weak demand forced Biofuel Energy to cut its price to $14 on Tuesday. And on Wednesday, the company again cut its price to $10.50 and reduced the number of shares to 6 million in hopes of raising $63 million.
Hype over ethanol has escalated along with the rising price of light, sweet crude oil, which traded at $67.50 on Thursday. But the rising cost of corn has raised new doubts about ethanol’s ability to compete with gasoline on cost.
Ethanol IPOs have so far stung investors. In the past 12 months, VeraSun Energy, Aventine Renewable Energy, and US BioEnergy have gone public and are all now trading below their offering prices.
Brookings, South Dakota-based VeraSun priced 18.3 million shares at $23 each on June 13, 2006. Shares on Thursday traded at $14.54, more than 50 percent below a high of $30.75.
Aventine Renewable Energy of Perkins, Illinois, priced 8.1 million shares at $43 each June 28, 2006. Aventine shares on Thursday were at $15.62, down from a high of $42.50.
US BioEnergy of Inver Grove Heights, Minnesota, on Dec. 14, 2006, priced 9.4 million shares at $14 each apiece. On Thursday, shares traded at $11.21.
Vinod Khosla, who formed Khosla Ventures in 2004, is a major proponent of ethanol investments. Mr. Khosla was a big backer of California’s Clean Energy Initiative, Proposition 87, which got shot down last year by voters.
Denver, Colorado-based Biofuel Energy is building two ethanol plants in the Midwest. Biofuel Energy, formed in 2006, has so far shown no revenue. Cargill is a major Biofuel Energy shareholder.
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