The corn ethanol business has been brutal this year, and operators suffered through a particularly messy fall. It appears that two of the stronger firms in the space have decided that in order to ride out the market imbalance, they need to band together. Thus we see husk-y VeraSun Energy
I didn't get a chance to cover either company's third quarter, but in the ethanol pure-play crop, these two stood out. Both companies sported double-digit EBITDA margins, whereas Aventine Renewable Energy
Every time I say even one negative thing about ethanol, some of my readers get a bit upset, so I'm focusing on the positives today. The new VeraSun will be a stronger company as a result of this merger. While US BioEnergy's 750-million-gallon end-of-2008 target provides VeraSun with a quick-and-dirty way to match or even surpass the scale of Archer Daniels Midland
A lot of US BioEnergy's strength stems from its connections to Fagen, a leading ethanol-plant builder, and CHS, the country's largest grain marketer. The former will help secure future plant sites (not that there's nearly as much competition to build these things today), while the latter relationship will support key details like corn procurement and fuel distribution.
Of course, I can't sign off without noting Pacific Ethanol's absurd share-price jump in response to this deal. Even Microsoft
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Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.