The move, which comes amid a glut of ethanol in the country, is expected to give VeraSun a total of nine ethanol plants, and seven under construction, boosting its capacity to more than 1.6 billion gallons per year by the end of 2008.
VeraSun currently has five facilities that pump out a total of 560 million gallons per year, with four more plants under construction that would increase its output to 1 billion gallons.
Under the merger agreement, a 0.81 share of VeraSun common stock will be issued for each outstanding US BioEnergy share, which VeraSun said represents a premium of 11 percent based on last Friday's closing prices.
"This merger is an opportunity for two leading companies in the renewable fuels industry to capitalize on synergies and provide value for shareholders," said Donald Endres, chairman, CEO and president of VeraSun.
"It also underscores the commitment of each company to execute on its growth strategy to become a large-scale, low-cost ethanol producer."
VeraSun shares will remain outstanding and will represent 60 percent of the combined company, which will be headed up by Endres in the CEO post.
US BioEnergy president and CEO Gordon Ommen will become chairman following the merger, with VeraSun CFO Danny Herron serving as president.
The combined company is expected to have a market capitalization of about $1.5 billion. The deal is expected to close in the first quarter of 2008, subject to shareholder and regulatory approval.