June 14 -- Shares of VeraSun Energy Corp., the second-largest U.S. ethanol producer, jumped as much as 34 percent on the first day after an initial public offering that tapped rising interest in alternatives to $3-a-gallon gasoline.
The shares rose as high as $30.75 after the company and stockholders yesterday sold 18.25 million at $23 each to raise $419.8 million. Brookings, South Dakota-based VeraSun had expected $21 to $22 a share, according to a June 9 filing. Stocks of ethanol makers such as Pacific Ethanol Inc. and Archer Daniels Midland Co. have nearly doubled in the past year.
``Ethanol supplies are pretty tight and demand is still rising,'' said Kevin Buente, who helps oversee a $2 billion portfolio of loans to ethanol makers and farmers at Normal, Illinois-based 1st Farm Credit Services. ``Anyone who can make ethanol will have no trouble finding buyers for it.''
VeraSun, whose revenue doubled in the first quarter, and Pacific Ethanol, which is building plants on the U.S. West Coast, are benefiting as hedge funds and other investors bet on rising interest in alternative fuels. Ethanol is being backed by President George W. Bush and by General Motors Corp. to help wean the U.S. off imported crude oil, and increased use was mandated by last year's energy bill.
The VeraSun share sale is the first this year by a U.S. ethanol producer and the largest to date by a company solely in the alternative fuels business, according to the Renewable Fuels Association, a lobbying group in Washington. Hawkeye Holdings Inc. and Aventine Renewable Energy Holdings Inc., the third- and fourth-largest U.S. producers, also plan initial stock offerings.
Decatur, Illinois-based Archer Daniels Midland is the largest U.S. producer of ethanol, which is made from corn in the U.S. and from sugar cane in Brazil.
Energy Bill
The switch to ethanol from MTBE as a gasoline additive in the U.S. resulted from rule changes in last year's energy bill. MTBE that leaked from underground storage tanks fouled drinking water and spawned lawsuits. The energy bill also requires increasing amounts of ethanol in fuel every year through 2012.
VeraSun's plants in Aurora, South Dakota, and Fort Dodge, Iowa, can produce 230 million gallons of ethanol a year. The company is building another in Charles City, Iowa, that's expected to have production capacity of 110 million gallons and begin operations in the summer of 2007.
Shares of VeraSun rose 28 percent to $29.55 at 10:48 a.m. in New York Stock Exchange composite trading. The company has a market valuation based on today's share price of more than $2 billion.
VeraSun had net income of $2.74 million during the first quarter, an increase of 62 percent from a year earlier, the company said in a government filing. Sales during the first quarter more than doubled to $109.9 million.
Morgan Stanley and Lehman Brothers Holdings Inc. were lead underwriters of the VeraSun share sale. AG Edwards & Sons Inc. assisted on the sale.
Pacific Ethanol
Shares of Pacific Ethanol, which has yet to produce any ethanol, rose $1.50, or 7.5 percent, to $21.64. They peaked in May at $42.39 after Microsoft Corp. founder Bill Gates invested $84 million in the company through his Cascade Investment LLC.
Fresno, California-based Pacific Ethanol is building a 35 million gallon-a-year plant near Fresno that will make it the biggest ethanol producer in the state. Pacific Ethanol plans four more distilleries on the West Coast by the end of 2008.
There are 101 U.S. ethanol plants today, with capacity to produce almost 4.8 billion gallons annually, according to the Renewable Fuels Association. An additional 32 distilleries and six expansions are under construction with combined capacity of more than 1.97 billion gallons, the Washington-based association said on its Web site.
