Valero Bids for VeraSun Assets

By LAUREN ETTER

Oil-refiner Valero Energy Corp. on Friday entered an agreement to buy a group of ethanol plants for $280 million from ethanol producer VeraSun Energy Corp., subject to a bidding process in Verasun's bankruptcy case.
This is the first foray into the ethanol business for Valero, one of the nation's largest oil refiners.
VeraSun, Sioux Falls, S.D., filed for bankruptcy last year amid a volatile commodities market and falling ethanol prices. Now under bankruptcy protection, the company has put up most of its assets for sale to generate cash.
"Given current difficult industry conditions and continued constrained credit markets, we believe that commencing a sale process is in the best interest of company stakeholders," said Don Endres, VeraSun's chief executive officer in a statement.
Bill Day, director of media relations at Valero says the timing is right to get into the ethanol business partly because of the availability of distressed assets.
"It's a good time for us to be able to buy assets at a reasonable price," Mr. Day said in an interview. "We can make an offer that's a good deal for our shareholders."
VeraSun has signed an agreement with Valero, San Antonio, Tex., to sell five production facilities and a sixth under development. The facilities are located throughout South Dakota, Iowa, Minnesota and Indiana. The purchase agreement is worth about $280 million, plus the value of inventory and certain prepaid expenses, the companies said in a joint statement issued Friday.
Any sale of assets would still have to go through an auction where an open bidding process would allow other companies to make their own offers. But, Mr. Day said that "We're hopeful we will be able close the deal" within the second quarter of the year.
Oil companies are ethanol's biggest customers, and traditionally the two industries have remained disconnected. Ethanol companies tend to be sprinkled across Midwestern farm towns, while oil companies tend to be located near the coasts.
Also the two industries have had tortured relations in the past, with oil companies reluctantly using ethanol after energy legislation mandated its use. Under government mandates, oil companies are required to blend billions of gallons of the corn-based fuel into their gasoline supply each year.
If the sale goes through, Mr. Day said that the company would be picking up the assets at about 25% of the estimated replacement value of a new plant.
Write to Lauren Etter at lauren.etter@wsj.com