NEWS ----VeraSun raises size and estimated price of IPO
Fri Jun 9, 2006 6:32am ET16
yahoo.reuters.com
WASHINGTON, June 9 (Reuters) - Ethanol producer VeraSun Energy Corp. on Friday raised the size of its planned initial public offering to 18.25 million shares at an estimated price of $21 to $22 each.
The company had previously filed with regulators for an IPO of 17.25 million shares in the range of $18 to $20 each.
VeraSun is offering 11 million shares, and stockholders are offering an additional 7.25 million.
Morgan Stanley, Lehman Brothers and A.G. Edwards are the underwriters. The company has received approval to list its stock on the New York Stock Exchange under the symbol "VSE" (VSE.N: Quote, Profile, Research).
_______________________________________________________
forbes.com
A Hot IPO For Ethanol
Scott Reeves, 06.09.06, 6:00 AM ET
Most Popular Stories
Most Expensive Regional Homes In The Northeast
World Cup: Big-buck Sponsorships
The Best Billionaire Hotels
WorldÂ’s Best Summer Beaches
Bernanke-Speak
New York -
Uncle Sam mandates VeraSun Energy's market for ethanol. How's that for a winning business plan?
But the sector is more than just a green halo and hope for future glory. Demand for clean, renewable and cheap alternatives to oil has grabbed the attention of smart money.
Last year, Microsoft (nasdaq: MSFT - news - people ) co-founder Bill Gates pumped $84 million into Pacific Ethanol through his investment company, Cascade Investment, and the stock has nearly quadrupled. The Fresno, Calif.-based company plans to build at least five plants in the Golden State to turn grain into ethanol. Pacific Ethanol lost nearly $10 million in 2005, but Gates sees growth ahead and holds about a 30% stake in the company.
VeraSun Energy is profitable. Its planned IPO will be a winner, as the price of oil has hit about $70 per barrel amid high worldwide demand and growing concerns about the stability of the Middle East.
VeraSun says it's the second-largest ethanol producer in the United States with about 5% of the market, trailing Archer Daniels Midland (nyse: ADM - news - people ), which claims about 24% of sales. However, VeraSun is the largest "pure play" in the sector because it focuses exclusively on the production of ethanol.
Ethanol is an alcohol blended with gasoline to increase octane and reduce tailpipe emissions. The industry grew at a compound annual rate of about 20% per year from 2000 to 2005. The Energy Policy Act of 2005 requires the use of renewable fuels. Demand for fuels such as ethanol will reach about 4 billion gallons this year and grow to 7.5 billion gallons per year by 2012.
Ethanol is replacing methyl tertiary-butyl ether, or MTBE, as a fuel additive. Twenty-five states have banned or significantly limited the use of MTBE after it was found to be a pollutant.
Use of ethanol as an additive allows refiners to produce greater quantities of lower octane fuel at reduced cost. Blending ethanol with gasoline increases octane, reduces pollution and increases the volume of fuel available to drivers.
Oil refining capacity in the United States declined about 5% between 1980 and 2005, but demand for gasoline increased 21% during that period. The gap between capacity and demand makes ethanol increasingly attractive.
VeraSun opened its first plant in Aurora, S.D., in 2003 and expanded it two years later. The company opened a second plant in Fort Dodge, Iowa, in 2005. VeraSun can now produce 230 million gallons of ethanol per year and the new plant in Charles City, Iowa, will boost total capacity to 440 million gallons per year in 2007. Two more plants will be up and running by 2008, one in Iowa and another in Minnesota. Each will have a production capacity of 110 million gallons per year.
Ethanol now accounts for about 3% of fuel use in the U.S., suggesting strong growth ahead. But keep an eye on the price of corn, which comprises about half of VeraSun's production cost. From 1996 to 2005, the price of a bushel of corn on the Chicago Board of Trade ranged from a low of $1.75 in 2000 to $5.48 in 1996, with an average of $2.47. On March 31, the price was $2.36.
Bad weather could drive prices higher, making ethanol uneconomical to produce. The company also uses large quantities of natural gas in the production process. The price of ethanol ranged from 94 cents per gallon to $2.76 per gallon and averaged $1.50 per gallon between 2001 and 2005.
VeraSun's plants are located in or near corn-growing areas served by several railroads. This assures a steady supply of corn and keeps transportation costs down.
Ethanol will continue to be used as an additive but may also compete eventually as an alternative to gasoline. In February, VeraSun and General Motors (nyse: GM - news - people ) agreed to promote the use of E85, a fuel containing up to 85% ethanol in "flexible fuel vehicles." VeraSun's branded E85 is available at 20 service stations in the Chicago area and 14 in Minneapolis. Ford Motor (nyse: F - news - people ) is backing a similar program in Illinois and Missouri. Though not even a pinprick in the market, the potential is huge.
For the three months ended March 31, 2006, VeraSun reported net income of $2.7 million on revenue of $110.7 million, compared with net income of $1.7 million on revenue of $44.8 million for the same period a year ago. However, the company was carrying significant debt, totaling $210 million as of March 31. Debt payments could limit future expansion.
Worldwide production of ethanol increased to 12 billion gallons in 2005, and 65% was produced outside the U.S. Brazil is the world's largest producer of ethanol and its plants primarily use sugar cane.
In the U.S., VeraSun competes with Archer Daniels Midland, Aventine and Cargill, which represent about 3% each and Abengoa, which represents about 2% of domestic capacity. The rest of the U.S. market is highly fragmented and handled by small, independent companies or farmer-owned cooperatives. Nationwide, there are about 90 ethanol plants. Aventine Renewable Holdings of Pekin, Ill., has filed to go public, though no date has been set for the IPO.
VeraSun Energy plans to offer 17.25 million shares at $18 to $20 each, including 6.25 million from current shareholders, through underwriters led by Morgan Stanley (nyse: MS - news - people ) and Lehman Brothers (nyse: LEH - news - people ). The proposed New York Stock Exchange symbol is "VSE." The deal is expected to be priced the week of June 12.
The company will receive nothing from the sale of shares by current stockholders. It expects to raise about $191.4 million in the IPO. It plans to use the net proceeds to build to new plants in Iowa and Minnesota.
Traditional energy and field-services-support companies have been consistent winners in the IPO market, including Bill Barrett (nyse: BBG - news - people ), TODCO (nyse: THE - news - people ), Hornbeck Offshore Services (nyse: HOS - news - people ), JED Oil (amex: JDO - news - people ), Atlas America (nasdaq: ATLS - news - people ) and Alon USA Energy (nyse: ALI - news - people ).
So far, everything favors VeraSun Energy: Federal law mandating the use of ethanol, uncertain supplies of oil from the Middle East, crimped refining capacity in the U.S., high prices at the pump and growing interest in cleaner-burning fuel to reduce pollution. It may make more sense to drill for oil in Alaska's Arctic National Wildlife Refuge or on the continental shelf, but the politicians, bowing to the environmental lobby, have nixed both options. Increased demand for ethanol almost certainly means solid growth ahead for VeraSun Energy.
In its registration statement filed with the U.S. Securities and Exchange Commission, VeraSun deadpans, "Historically, the price of a gallon of gasoline has been lower than the cost to produce a gallon of ethanol." Economic sense aside, VeraSun Energy's IPO will be a hot one.
Coming To Wall Street
Company And Proposed Ticker
Headquarters
Sector
Number Of Shares (mil)
Price Range
Lead Underwriter
Golfsmith International Holdings (nasdaq: GOLF)
Austin, Texas
Specialty retailer of golf equipment
6
$14-$16
Merrill Lynch
Houston Wire & Cable (nasdaq: HWCC)
Houston
Distributes specialty wire and cable
8.5
$12-$14
William Blair
Synchronoss Technologies (nasdaq: SNCR)
Bridgewater, N.J.
Develops e-commerce transaction management software
7.6
$9-$11
Goldman Sachs
VeraSun Energy (nyse: VSE)
Brookings, S.D.
Produces ethanol from corn
17.25
$18-$20
Morgan Stanley
Verigy Ltd (nasdaq: VRGY)
Singapore
Develops test equipment for semiconductors
8.5
$16-$18
Goldman Sachs
Volcano (nasdaq: VOLC)
Rancho Cordova, Calif.
Develops ultrasound equipment to diagnose and treat vascular and heart disease
6.8
$10-$12
JPMorgan
Source: Redherring.com |
