First signs of consolidation in ethanol industry

VeraSun Energy Corp., the nation's No. 2 ethanol producer, announced it had received an unsolicited takeover bid one month after seeking bankruptcy protection, and just hours after the nation's biggest producer, Poet LLC, said it was talking with other companies about buyouts.

Neither Poet nor VeraSun will say if the two are negotiating a deal. VeraSun made the announcement just hours after Poet Chief Executive Jeff Broin told The Associated Press that his company was talking with a number of producers.

"They are one of the larger private guys that would have the necessary capital to actually do this," said Cory Garcia, a Houston-based senior research associate with Raymond James & Associates.

Poet and Verasun, both based in Sioux Falls, collectively control more than a quarter of the nation's ethanol capacity.

Todd Alexander, a New York partner in the renewable energy group of law firm Chadbourne & Parke, said a likely scenario would pair an existing producer with an outside financial partner.

"There have been rumors about the oil majors lurking in the shadows and keeping an eye on things," Alexander said. "But I have yet to see them get seriously involved.

"That doesn't mean in the future that they won't."

In recent years as crude prices soared and corn stayed cheap, money flooded into the biofuels sector. With tax breaks and a huge federal mandate to produce more ethanol, the industry appeared more ready than every to compete.

Companies began building ethanol plants everywhere, regardless of whether it made economic sense, said Ian Horowitz, an analyst with Soleil Securities Group.