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The first in what is expected to be a wave of acquisitions hit the troubled ethanol industry Thursday, as VeraSun Energy Corp., based in Brookings, S.D., bought US BioEnergy Corp., based in Inver Grove Heights, in an all-stock deal valued at $686 million.

The move is all about size, company executives and analysts said.

The deal creates an 870 million-gallon-a-year ethanol producer, and one with plans to double production next year to 1.6 billion gallons by adding eight new plants. That would make it the largest ethanol producer in the country. The current leaders -- Poet, based in Sioux Falls, S.D., and Archer Daniels Midland -- each produces just over 1 billion gallons per year.

Worsening market conditions for ethanol make it likely that the deal will be the first of many, according to Wells Fargo economist Michael Swanson.

"It's hardly any secret that there's going to be a consolidation coming," said Swanson, an agricultural economist with Wells Fargo, the largest agricultural lender in the country. Current pressures on the industry make it cheaper to buy an existing plant than build a new one, driving even more acquisitions and takeovers in coming months, Swanson said.

It's been a relatively quick descent for ethanol from last year's glory. Then the president was talking up the fuel in his State of the Union speech, domestic automakers were pitching ethanol-filled vehicles and Wall Street was clamoring to get a piece of the action.

VeraSun, when it went public in June 2006, rose 30 percent on its first day of trading.

The hope for a company like VeraSun is that its heftier size will offer shelter, said one analyst.

"The market will get brutal next year," said William Whipple, head of the food and agribusiness for Wells Fargo Securities, the bank's investment banking subsidiary. The ethanol market by the end of next year will drive out smaller players and those without solid financing, he said.

"The ones I worry about are the one- and two-facility guys," Whipple said. "They're just, in my humble view, going to get crushed."

The nation's ethanol production this year should total nearly 7 billion gallons, or about 5 percent of the U.S. gasoline market. Plans call for adding 6.6 billion gallons of ethanol production to the nation by the end of next year, according to the Renewable Fuels Association, ethanol's primary lobbying group.

The deal announced Thursday joins two of the industry's larger players, but also two of its newest: VeraSun, the third-largest producer, opened its first plant four years ago, and US BioEnergy, the fourth-largest, had its first plant online three years ago.

None of the two companies' existing plants competes with each other for corn supplies, executives said. They plan to use corn for the near future, but see the rise of a cellulosic ethanol industry in five years, VeraSun CEO Don Endres said in a conference call with analysts Thursday morning.

The combined company's headquarters will remain in Brookings, S.D., but that could change, he added.

The deal was widely approved by analysts who saw the combination bringing scale and lowering costs for VeraSun. Investors approved as well, with the stock price of both companies rising in trading on Thursday, VeraSun's by 3 percent and US BioEnergy by nearly 5 percent.

"We think we hit the ground running," Ommen said.

Ethanol has long profited from government subsidies, including a 51 cents a gallon subsidy paid to blenders who mix ethanol with gasoline, a tariff meant to protect domestic ethanol supplies and a renewable fuels standard that created a government-mandated market.

"If you don't have an expanded mandate then you're going to see a lot of bankruptcies," said David Morris, of the Institute for Local Self-Reliance.