Valero Outbids ADM For VeraSun Plants

By JESSICA RESNICK-AULT and PEG BRICKLEY

Oil refiner Valero Energy Corp. outbid agribusiness giant Archer Daniels Midland Co. for the right to buy ethanol plants from bankrupt VeraSun Energy Corp.
The U.S. Bankruptcy Court in Wilmington, Del., on Wednesday accepted the bid from Valero, making it the first oil company to buy a group of ethanol plants.
Valero, the largest U.S. refiner, is shoring up its access to the corn-based fuel, which it blends into the gasoline it produces to comply with a federal mandate.
"We expect increases in the Renewable Fuels Standard to continue," Valero Chief Executive Bill Klesse said in a statement.
Valero bid on seven of VeraSun's plants and the right to build an eighth. The refiner, based in San Antonio, Texas, will pay $477 million, and an additional $75 million in working capital, it said. The bid was larger in size and scope than an initial offer of $280 million for five of the plants.
Valero outbid ADM, offering $33 million more than ADM was willing to pay for the five plants and the right to buy a sixth, said Patrick J. Nash, an attorney for VeraSun.
ADM offered $700 million for the entire company but lost to Valero, in part due to antitrust concerns. Valero also bid on the entire company, but on a plant-by-plant basis rather than on ADM's winner-take-all position, said Mr. Nash, who is with the firm of Skadden Arps Slate Meagher & Flom.
The plants will provide Valero with 780 million gallons of ethanol production capacity, enough to make about half of the ethanol it needs to comply with a federal mandate in 2009, according to analyst estimates.
The federal mandate for ethanol, first adopted in 2005 and expanded in 2007, generated interest in the industry, prompting investors to fund new plant construction across the Midwest. In 2008, high corn prices and low gasoline demand squeezed ethanol producers' margins, forcing several of them to file for bankruptcy protection.
VeraSun filed for Chapter 11 bankruptcy protection in October, after taking on debt to buy rivals. As corn prices skyrocketed in mid-2008, a poorly executed risk-management strategy led VeraSun's costs to mount, rendering the company unable to pay its debt. The company was unable to get enough cash while under bankruptcy protection to keep all its plants in production or to restructure.
Write to Jessica Resnick-Ault at jessica.resnick-ault@dowjones.com and Peg Brickley at peg.brickley@dowjones.com