US drivers fuell a wave of deals for ethanol makers

Bloomberg

America’s renewed love affair with driving could reshape the U.S. ethanol industry.
Green Plains Inc. said it agreed to buy two plants from Spain’s Abengoa SA, and the European company separately said it would sell two other mills — with the four sales totaling $350 million. Also at play is The Andersons Inc.’s biofuel arm, which HC2 Holdings Inc. has been jockeying to acquire while working with strategic partners. Further consolidation is probably on the way, Jefferies LLC analysts including Laurence Alexander said in a report on Tuesday.
Ethanol makers are on the hunt for deals amid record demand for the biofuel, which has been spurred by rising gasoline consumption. Companies are acting on the lessons learned earlier this year when cheap crude oil, a supply glut and stable corn costs shrunk production margins. Now that ethanol prices have rebounded and revenues are on the rise, the producers are using the extra cash to add scale and improve efficiency.
“Large companies want to get larger,” Heather Jones, an analyst at BB&T Capital Markets in Richmond, Virginia, said by phone. “Just like any other market, the larger you are, the more you can control production and influence prices.”

Fragmented Industry
The U.S. ethanol industry is still fragmented compared to oil, its biggest customer. The five-biggest companies account for about 46 percent of capacity. Most of the other plants are privately owned by local farmers and cooperatives, said Tom Houser, vice president of CoBank, a Greenwood Village, Colorado-based agricultural lender that’s financed about 50 plants.
If the Green Plains deal goes through, the company would supplant Valero Energy Corp. as the third-biggest U.S. ethanol producer by capacity. Archer-Daniels-Midland Co., based in Chicago, is the top producer, followed by Sioux Falls, South Dakota-based Poet LLC.
HC2 Holdings, the holding company run by former hedge fund manager Philip Falcone, came back with an additional strategic partner this month in its latest bid to buy U.S. grain trader The Andersons.
HC2 altered its $950 million offer for the rail business and parts of the grains unit, saying it and the new strategic partner would pay $1.15 billion for those businesses plus the ethanol arm. The holding company also said it may consider boosting its rejected $1.04 billion offer for The
Andersons. Jones said in a note this month that Green Plains could be the new unnamed strategic partner working with HC2. Green Plains didn’t immediately return several e-mails and telephone messages seeking comment on the speculation.