The world’s largest ethanol and sugar processor, Brazil’s Cosan, announced Monday it signed an agreement to merge its ethanol and fuels distribution business in the country with Royal Dutch Shell in a deal valued as much as US$ 12 billion.
Cosan said it has 180 days to discuss the non-binding memorandum of understanding exclusively with Shell International Petroleum Company Ltd. As part of the transaction, Cosan will transfer to the merged entity its sugar, ethanol, fuels distribution and energy generation business, with assets valued at US$ 4.9 billion and debt of US$ 2.5 billion.
Cosan said Shell will contribute its retail fuels and aviation distribution business and will inject about US$ 1.6 billion into the merged company in up to two years. Cosan will contribute another 300 million in cash over five years
“The joint venture would enable Shell and Cosan to establish a scalable and profitable position in sustainable bio-fuels – one of the most realistic commercial solutions to take carbon out of the transport fuels sector over the next twenty years – by building a market-leading position in the most efficient ethanol producing country in the world” according to a joint release from the two companies.
With annual production capacity of about 2 billion liters and significant growth aspirations, the joint venture “would be one of the world’s largest ethanol producers”. In addition, the inclusion of Shell’s equity interests in Iogen and Codexis would potentially enable the joint venture to deploy next generation bio-fuels technologies in the future.
The deal would also enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil. With a network of about 4,500 retail sites and a total annual throughput of about 17 billion liters the new enterprise would have a leading position in the fuels retailing market in Brazil, with strong potential for synergy capture and future growth.
Mark Williams, Royal Dutch Shell’s Downstream Director, said: “Today’s announcement demonstrates the continued importance of Brazil to Shell. We’re looking forward to joining with a leading company in Brazil to meet the needs of retail and commercial fuels customers in that growing market.
“We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix. The joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.”
Rubens Ometto Silveira Mello, Cosan’s Chairman of the Board, said: “Cosan’s vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential.
Brazil is the world’s largest ethanol exporter and there is huge demand domestically because most new cars work on ethanol, gasoline or any combination of the two fuels. Brazilian ethanol is made from sugarcane.
Cosan has a milling capacity of 60 million tons annually of sugarcane, two port terminals, 23 sugar processing plants and several refineries in the state of Sao Paulo, where the powerful Brazilian sugar industry is located.
Cosan will only keep the Mobil brand lubricants, a group of farms, another logistics center and the sugar brand União and confectionary De Barra,
In 2008 Cosan purchased Exxon Mobil fuel and lubricants distribution business and currently manages 1.500 service stations.