Sector Wrap: Ethanol Gains Ground on M&A
Thursday November 29, 3:58 pm ET
Ethanol Producers Rise After VeraSun Buys US BioEnergy; MGP Ingredients Jumps on Upgrade
NEW YORK (AP) -- VeraSun Energy Corp. agreed to buy rival US BioEnergy Corp. Thursday, and the news lifted the stocks along with those of other ethanol producers.
VeraSun is acquiring its smaller competitor in an all-stock deal estimated at $686.2 million. The resulting company may be the largest U.S. ethanol producer, with the capacity to make 1.6 billion gallons per year by the end of 2008.
VeraSun shares rose 84 cents, or 11.5 percent, to $8.19.
US BioEnergy stock advanced 47 cents, or 5.9 percent, to $8.50.
Northland Securities analyst Steve Denault said VeraSun is paying $1.25 per gallon of US BioEnergy's 2008 production. In his view, that establishes a minimum price in measuring ethanol production as part of a company's value.
With that price in mind, Denault upgraded shares of MGP Ingredients Inc. to "Market Perform" from "Under Perform."
"While we don't believe MGP Ingredients would consider a sale of the company, (the deal) likely places a temporary floor as it relates to valuation metrics for publicly traded ethanol companies," he said.
At $1.25 per gallon of 2008 capacity, he said, MGP's ethanol business is worth $8 per share. Its ingredient business adds $2 per share for a fair price of $10 per share.
The stock climbed 93 cents, or 12.7 percent, to $8.28 in afternoon trading.
Elsewhere in the sector, shares of Aventine Renewable Energy Inc. picked up 34 cents, or 3.9 percent, to $9.11.
Pacific Ethanol Inc. gained 34 cents, or 7.3 percent, to $5.03.
Shares of Archer Daniels Midland Co. added 8 cents, to $36.06.
Shares of The Andersons Inc. lagged rivals, falling 70 cents, to $40.14.
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