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VeraSun IPO Lands $420 Million

14 June 2006

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VeraSun’s three ethanol plants represent 5% of US production capacity.

Ethanol producer VeraSun Energy Corporation and its shareholders raised $419.75 million in the company’s IPO today. VeraSun is the second-largest producer of ethanol in the US, behind Archer Daniels Midland (ADM) and the largest pure-play ethanol company.

The company sold 11 million shares and shareholders sold 7.5 million shares at a price of $23 per share—exceeding the $21 to $22 pricing range the company forecast in its regulatory filing.

VeraSun’s IPO is the first this year by a US ethanol producer, and the largest yet for an alternative fuels company.

VeraSun operates three plants with a combined production capacity of 230 million gallons of ethanol per year—about 5% of the US total capacity—and is building another 110-million-gallon plant due to come online in 2007.

VeraSun is partnering with Ford and GM in a series of initiatives designed to increase the E85 refueling infrastructure in select areas of the US.

June 14, 2006 in Ethanol | Permalink | Comments (3) | TrackBack (0)

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If oil prices come down (due to increased supplies from old/new souces, decreased demand, producers/processors eating their profits), we may see the repeat of the 90's tech bubble with green energy. Afterwards big business may come in and buy up tech/products/companies developed since the late 90's on the cheap. Do not be surprised if ADM, Cargil, or other big chemical, energy, bio-agro consolidate the business. It may be Standard Oil all over again.

Ethanol production, especially by current conventional means, is a far more flexible industry than oil was or will. If a conglomerate bought up a large percentage of ethanol output in an attempt to cash in on a monopoly by restricting supply and driving up price, more farmers and investors would move in to build replacement plants. The real monopoly issue that lurks in the background is the ability to make exclusive use of new production techniques while they are under patent protection. An aggressive monopolist could use his cost advantage to drive conventional producers out of business, and then seize the market for himself. Depending on the nature of the barriers to entry and other issues of detail, it might become hard for new entrants to fight the monopolist even if prices are high enough to support a (more expensive) conventional process profitably.

Further in the background, of course, is the fact that petroleum remains a good substitute or replacement product, which will have a substantial effect on the ethanol economy for the foreseeable future. It sets a ceiling on how much a hypothetical ethanol monopolist could charge, and it sets a floor which, if moved too far down, could undercut ethanol producers and stunt the growth of that industry.

Responding to this concern, many people commenting on these pages have advocated the imposition of generally higher gasoline taxes in the U.S. market, or the imposition of a price floor by means of a flexible tax rate, in order to discourage gasoline consumption and allow the market to provide a measure of minimum profitability and stability to alternative fuel producers. These measures make at least as much sense as the current 50c/gal refundable credit currently given to ethanol blenders. By loading the behavior-modifying policy into a front-end gasoline tax (and offsetting the effects on lower income individuals through more generous income tax provisions), alternative fuels get a means-neutral boost, which will promote many different options across the board, instead of one specific fuel exclusively.

I agree with both of the previous posts. The important condition for braking America's addition to oil is predictably high prices at the pump for the next decade.

Motor fuels, regardless of source, should be taxed based on either energy content or carbon content, or some mix of the two. This is intended to deliver a technology-neutral incentive for consumers to focus on fuel economy and CO2 footprint.

In addition, it may be appropriate to tax energy imports, especially those from countries that are deemed potential national security risks. This is intended to shift supply to alternate sources.

Note that domestic biofuel farmers could be paid a portion of the tax collected as a reward for the carbon captured and energy independence delivered. This would make biofuel production more competitive with fuels from crude oil. It would also allow the current protectionist tarriff on ethanol to be dropped.

There is a growing body of opinion that kerosene for jet aircraft should be subject to similar taxes as motor vehicle fuels. This would depress demand and encourage greater fuel efficiency (adjusting routes and civilian air corridors, integrating high-speed rail travel, increasing occupancy rates, higher-bypass engines, lower weight).

The remainder of all these collected taxes should be used to fund tax cuts elsewhere, e.g. a flat income tax credit. I am NOT advocating a net increase in the total tax burden imposed on the population, merely a shift in what is taxed.

Also, all of the above taxes should be ramped up over suitable periods aligned roughly with the investment cycles of the segment affected. Cars have a life expectancy of 10-15 years. Refinery equipment and aircraft last 20-30 years. Shifting the tax base toward consumption has to be a slow process to avoid inflation, overly accelerated asset depreciation and, to ensure the transition to more frugal energy use is permanent. The US may still have enough time wrt global warming IFF it gets started now.

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