VeraSun: Next To Fold?

By Daniel Englander

And the hits just keep on coming. Pure-play ethanol company VeraSun sent out a press release late Thursday night announcing they retained Morgan Stanley (MS) to help “evaluate strategic alternatives”. That’s pennies-on-the-dollar talk if I’ve ever heard it. VeraSun’s (VSE) stock price dropped 75 percent on Wednesday on news the company will post losses of $63 million to $103 million dollars this quarter because of its failed corn purchasing strategy. The beleaguered ethanol company exited its short positions after corn jumped from $6 per bushel in May to over $8 per bushel in July, and started buying up contracts at the then-market price. VeraSun got caught with overpriced contracts when corn darted below $5 per bushel in August.

In an 8-k filing the company submitted to the SEC on Tuesday VeraSun said “we expect to record average corn prices of between $6.75 and $7.00 per bushel during the third quarter of 2008,” well above the prevailing market rate. The same day the company announced it would offer 20,000,000 shares of common stock to gain back some of the money it lost in the botched corn trades.

Unfortunately for VeraSun, this was not the week to raise capital. Investors started a bolt for the exit once they learned the company needed to raise money to sustain its substantial losses. Two days later VeraSun has withdrawn its share offering - perhaps a more “strategic” deal is in the offing. However, if neither lenders nor the U.S. Government were willing prop up Lehman Brothers, you can bet Hank Paulson won’t give VeraSun even a passing thought as he crunches through his morning meusli.

I wouldn’t be surprised if VeraSun goes down the strategic alternative road sometime in the next week. Whether that’s bankruptcy or acquisition remains to be seen. Morgan Stanley, it’s underwriter and advisor, looks headed for the same path tonight as the investment bank reportedly mulls a 49 percent offer from China’s CIC. This mess is far from over. And greentech companies in the project development and construction stage, with their large capital requirements and low revenues, will feel the pinch over the next few weeks.

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