June 13, 2006 4:00 AM PDT

Ethanol maker to test IPO market this week

Another test of Wall Street's taste for alternative energy will take place this week when VeraSun Energy holds its initial public offering.

The Aurora, S.D.-based company, which produces ethanol from corn, is expected to sell 18.25 million shares in an IPO for between $21 and $22 dollars a share. If successful, the IPO will give the 160-employee company a market cap of around $1.7 billion. The final price on the offering is expected at the end of the day on Tuesday, with public trading of the stock taking place afterward.

Interest in the IPO seems high. VeraSun initially planned to sell only 17.25 million shares for $18 to $20 a share, but on June 9 upped the price and amount of shares to be sold.

VeraSun is the second-largest producer of ethanol in the United States, with a current output of 230 million gallons per year. Planned facilities will allow the company to increase output to 340 million gallons per year by August 2007 and 560 million gallons per year by the first quarter of 2008.

In the first quarter of 2006, the company garnered $109.9 million in revenue, but only $2.7 million in net income.

After years of laboring in relative obscurity, companies touting solar energy, biofuels and other so-called clean technologies are now attracting venture capital and interest from investors.

Part of the interest comes from fears about global warming and rising fuel prices.

Alternative energy companies, however, have also seen sales grow in the past few years. Solar panels consumed more silicon than semiconductors in 2004. Rising demand for solar panels, in fact, has created a shortage of them. The technology and management behind these companies have also improved, according to Ira Ehrenpreis, a partner at investment management company Technology Partners.

"Most of what we see are science projects in this space, but in the last 24 months we've seen significant improvements in the management teams," he said at a conference last week.

Last November, SunPower, which makes highly efficient solar panels for homes and buildings, went public at $18. The company's stock now trades for around $28.

Ethanol, an alcohol made from vegetable matter, is used as a gasoline additive, but can serve as the primary fuel in some cars. It's extensively consumed in Brazil. Ethanol manufacturers have received investment in recent months from, among others, venture firm Kleiner Perkins and a venture outfit funded by Bill Gates.

If history is an indication, a successful IPO for VeraSun will help other ethanol companies garner funds. Aventine Renewable Energy, which produces and distributes ethanol, filed an S-1, a prelude to an IPO, to sell 7.75 million shares for between $37 and $41 per share. Aventine reported $935.4 million in revenue and $32.1 million in net income in 2005.

The alternative energy market, though, has its detractors. Governments provide heavy subsidies to solar and ethanol companies. These products would not currently be competitive without them. Ethanol production facilities, meanwhile, cost millions to build. As a result, a downturn in the price of gas or other factors could make ethanol uncompetitive.

In 2005, for instance, sales at VeraSun increased over 26 percent to $235.4 million. Net income, however, came to only $253,000, or about 1 percent of revenue. A perceived oversupply of ethanol, the rising price of natural gas, a loss of some governmental assistance and a 17-day production outage caused net income to drop, according to documents filed by the company with the SEC. (In 2004, the company reported $14.7 million in net income off of revenue of $194 million.)

For all the publicity, ethanol is also not yet a huge part of the world's energy diet. The world consumes about 20.4 million barrels of oil a day, and each barrel can produce about 20 gallons of gas.

Ethanol also needs to be improved. Currently, most ethanol in the U.S. is made of corn, while in Brazil it comes from sugar cane. Unfortunately, processing either material into usable fuel is not that efficient.

Researchers right now are looking at ways to produce ethanol out of superweeds and other plants that can fertilize themselves, consume less water and produce more energy per kilogram.

See more CNET content tagged:
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9 comments

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HHO converts water to fuel while driving
I'm surprised that I haven't heard more about HHO on websites since this is so much more efficient then ethonol it seems.
This is a company called Hydrogen Application Technologies Inc that produces Aquygen.

<a class="jive-link-external" href="http://hytechapps.com/" target="_newWindow">http://hytechapps.com/</a>
Posted by Blito (436 comments )
Reply Link Flag
Perpetual Motion?
I also read and viewed the video of that flawed article on HHO. Lets see, take liquid water (H2O) and apply energy to extract a cocktail of higher energy gases (HHO), burn the Hydrogen gas, and get oxygen and H2O as exhaust. Sounds like someone forgot to factor in the cost of the energy to get from H2O to HHO.
Posted by kquickkquick (21 comments )
Link Flag
HOAX
This is baloney. that guy doesn't even have an education.
Posted by baswwe (299 comments )
Link Flag
yes...
This company was spotlighted on our local news. It is based in FL. There is also another one. Check it out...

<a class="jive-link-external" href="http://www.changingworldtech.com/" target="_newWindow">http://www.changingworldtech.com/</a>
Posted by dondarko (261 comments )
Reply Link Flag
HHO HHO HHO! Wanna buy the Brooklyn Bridge?
There never seems to be a shortage of folks looking for a pie in
the sky to buy.

That said, alternatives to "rock oil" (as it was called when we
used whale oil) have to produce more energy when burned than
they consume to produce. This is hard. Ethanol made from corn
does not, while ethanol from sugar does. Some day we'll all
likely be burning Brazilian ethanol.

Making diesel fuel out of organic garbage is a dream. Dream on,
though. Somebody has to.
Posted by JackfromBerkeley (136 comments )
Reply Link Flag
NO point
Due to the amount of Ammonium Nitrate, made of petrol, used iin
growing corn, there is .9 gallons of oil used to make 1 gallon of
ethanol
Posted by wizardjs (11 comments )
Reply Link Flag
 

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