Bankrupt ethanol producer VeraSun has announced an agreement to sell a significant portion of its assets to Valero Energy Corporation for $280 million.

The deal would involve VeraSun production facilities in Aurora, South Dakota; Charles City, Fort Dodge, and Hartley, Iowa; and Welcome, Minnesota; and a development site in Reynolds, Indiana. Having entered into the Valero agreement, the Company is now required to hold an auction to determine if other bidders will offer more favorable terms than Valero’s bid, referred to as a “stalking horse” bid.

“Given current difficult industry conditions and continued constrained credit markets, we believe that commencing a sale process is in the best interest of Company stakeholders,” said Don Endres, VeraSun’s Chief Executive Officer.

This would be Valero’s first foray into the ethanol business. The day before VeraSun announced the deal, Valero CEO Bill Klesse said in a conference call that they were “very interested” in making acquisitions in distillates, which include diesel fuel, jet fuel and heating oil, at the same time they are trying to sell a gasoline refinery in Aruba.