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Agreement for a joint venture establishing two firms as “a global ethanol business.”

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Shell and Brazilian sugar and ethanol giant Cosan sign binding agreement to create a global ethanol business in Brazil

Shell and Cosan Thursday said they had signed a binding agreement for a joint venture that will see the two firms establish what they termed as “a global ethanol business.” Cosan is one of Brazil’s foremost ethanol producing companies and the deal with Shell is targeted at gaining from the burgeoning demand for biofuels globally. The joint venture between the two firms in Brazil is expected to have per annum sales estimated at $21 billion.

The two firms modified the joint venture to include all of Cosan’s energy generation operations and nearly $300 million in debt, from the original deal that was announced when the joint venture was first reported in February, this year. As it is, the current agreement announced today is an improved version of the first deal that the two firms were reported to have entered back in February.

Reports have suggested that the new joint venture is already mulling a number of acquisitions. Royal Dutch Shell is Europe’s biggest oil company and the deal encompasses a $12 billion joint venture with the Brazilian, biggest ethanol manufacture, Cosan. The joint venture will be involved in the production and distribution of ethanol from sugar cane, said the two firms. The joint venture is considered the biggest investment by a major oil company in Brazil’s ethanol industry.

It is yet to get regulatory approval from Brazilian competition watchdog. Cosan will contribute its existing capacity to crush 60 million tons of sugar a year at its 23 mills, producing 2 billion liters of ethanol, said the joint statement. On its part, Shell will bring in about $1.6 billion in cash, its equity in Iogen Energy and Codexis, two biofuel research companies, and its Brazilian aviation fuel business, including one recently acquired from Cosan.

Both would put their Brazilian retail sites into the distribution network, totaling nearly 4,500 outlets. The two firms will also explore a worldwide expansion of production and sales. Royal Dutch Shell plc, or Shell, is an Anglo-Dutch petroleum company and one of the six vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies globally.

Cosan is a public company, a Brazilian conglomerate producer of bioethanol, sugar and energy. Cosan cultivates, collects and processes sugar cane, the main raw material used in the production of sugar and ethanol.

Source: Invest in Brazil

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