Ethanol Consolidation Begins

It was just matter of time.

Verasun (VSE) and US Bioenergy (USBE), both trading around 52 week lows, have agreed to merge.

Under the agreement, 0.81 share of VeraSun common stock will be issued for each outstanding share of US BioEnergy common stock, representing a premium of approximately 11% based on 11/23, closing prices. Existing VeraSun shares will remain outstanding and will represent approximately 60% of the shares outstanding after the merger.

VeraSun Chairman, CEO and President Donald L. Endres will remain CEO of the combined company, and US BioEnergy President and CEO Gordon Ommen will serve as chairman following the closing of the merger. VeraSun Senior Vice President and Chief Financial Officer Danny C. Herron will become president of the combined company. The combined entity will retain the VeraSun name and trade under VeraSun’s existing ticker symbol, VSE.

Upon completion, the new company will have nine ethanol production facilities in operation and seven additional facilities under construction. By the end of 2008, the company is expected to have a total production capacity of more than 1.6 billion gallons per year (BGY) and 16 facilities constructed by Fagen, Inc. and utilizing ICM process technology. Through the merger, the employees of both companies will be integrated into a combined work force.

VeraSun will then be the or equal to ADM (ADM) as the largest public ethanol producer in the US. With valuation of producers at record lows, do not expect this to be the last merger or buyout you read about in the coming months. Prime targets are Pacific Ethanol (PEIX) for its west coast monopoly and The Andersons (ANDE) because it is still profitable and has a fertilizer segment that is doing very well.

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