Poet discusses ethanol acquisitions
November 26, 2008
OMAHA (DTN) – Ethanol producer Poet LLC is currently involved with other ethanol plants regarding possible acquisitions, the company said in a statement issued this week.
This information comes on the heels of the financially-troubled VeraSun Energy Corp.’s announcement late Monday that a potential buyer has expressed interest with “respect to the purchase of substantially all of its assets.”
“Poet is in serious discussions with a couple of ethanol producers regarding possible acquisitions,” stated Jeff Broin, chief executive officer for Poet, in comments released by the company.
“Due to confidentiality agreements, we cannot disclose names or locations of the plants. We have a rigorous site selection process that all of our plants must meet. These potential acquisitions have met our initial criteria, and we will continue discussions to determine whether the plants are the right fit for our company.
“Poet remains profitable despite the current economic challenges facing the ethanol industry thanks to careful risk management and proprietary technology that makes our process for producing ethanol extremely efficient.”
Neither VeraSun or Poet would state whether the two companies, both based in Sioux Falls, SD, are in talks with each other. VeraSun filed for Chapter 11 bankruptcy protection on Oct. 31, which allows the company to continue operations while it reorganizes its debt. The company had 14 operating plants in eight states and three other plants under construction before the bankruptcy was filed.
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Ian Horowitz, an ethanol analyst for the Soleil Securities Group in New York, said it’s difficult to gauge the actual interest in VeraSun’s plants, but they are considered to be in good physical condition. One challenge for Poet would be the footprint of plants given that VeraSun and Poet facilities overlap in a lot of areas.
“It’s hard to tell how serious the interest is,” Horowitz said. “It may just be a phone call saying ‘Hey, what have you got?'”
Another possible suitor for VeraSun could be Archer Daniels Midland Co. Once the nation’s largest ethanol producer, ADM has largely sat on the sidelines in recent years while other companies built new plants. ADM spokesperson Beth Ragan would not comment on the prospects of ADM purchasing ethanol plants that are facing economic problems. A year ago, ADM Chief Executive Patricia Woertz, however, made it clear that her company would be on the lookout for struggling ethanol producers if the company could pick up assets for the right price.
“We’re actively engaged in this market all the time, and we know where every plant location is,” Woertz said in a conference call last year. “But it would have to be a real value and scale and fit with our network.”
Horowitz said that probably every major company is interested in the VeraSun facilities, but competitors such as ADM likely would shrewdly hold out to buy at the lowest possible cost.
“They have the patience to wait,” he said.
Todd Alexander, an attorney who represents secured lenders in the VeraSun case, stated in an e-mail he could not comment directly on any potential buyout because of his involvement in the case. However, Alexander said that, in general, he believes the industry is “ripe for consolidation.” Ethanol companies “need to achieve economies of scale to remain competitive, and it has been difficult to do so because of lack of access to capital and uncertainty surrounding the government support of the industry,” Alexander stated.
Another potential buyer for struggling VeraSun could be Cargill. Cargill communication director Bill Brady declined to comment to DTN on the company’s strategies when it comes to purchasing other ethanol company’s facilities. “We do not comment on strategies.” However, he did add they are in favor of biofuels.
VeraSun’s bankruptcy came as a result of third-quarter losses in excess of $400 million. Since the case filing, VeraSun has reportedly shut down some of its plants, including the 100-million-gallon plant in Dyersville, IA.
Farmers and other suppliers in the bankruptcy case object to the bankruptcy court allowing VeraSun to break contracts with farmers to deliver grain. A meeting of farmers and attorneys is set for Wednesday in Floyd, IA.
National Corn Growers Association Chairman Ron Litterer is also part of the group of farmers who have filed a formal objection with the U.S. Bankruptcy Court in Delaware, according to a release from the NCGA. Litterer, who is a corn farmer from Greene, IA, has an outstanding contract to deliver corn to VeraSun. He filed the objection with and on behalf of corn growers in at least seven other states that have similar situations.
“It is doubtful that we can influence the courts to require VeraSun to pay the contracted price for our corn. However, we do hope to influence other issues of concern to growers,” Litterer said.
The objection concerns VeraSun’s proposed procedures under bankruptcy, which may allow VeraSun to wait until 10 days before the contracted delivery date to notify growers of their rejection of the contract. Litterer believes this is unfair to corn growers and other corn suppliers. This situation would leave corn suppliers in a state of limbo while VeraSun is free to determine the market price for corn before deciding whether to accept deliveries under a contract or summarily reject the contract.
According to information available to NCGA, potentially thousands of corn growers from Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and other states have contracts with VeraSun.
DTN Ag Policy Editor Chris Clayton contributed to this report.
Russ Quinn can be reached at email@example.com