Brazil's Raizen, the joint venture between Royal Dutch Shell Plc and Cosan SA, has agreed to buy Biosev SA, the sugar and ethanol unit controlled by Louis Dreyfus, in a cash and stock deal, the companies have announced.
Raizen will pay 3.6 billion reais (€550 million) to Biosev shareholders, who will also receive 3.5% of Raizen preferred shares, plus 1.49% of redeemable shares, it said in a regulatory filing. The company declined to disclose the full purchase price.
The deal boosts Raizen's position as the world's largest sugar maker and one of the largest ethanol producers. It will operate 35 mills in Brazil with a sugar cane crushing capacity of 105 million tonnes per year, equivalent to 17% of Brazil's center-south crop in 2019/20.
Biosev and Raizen produced nearly five million tonnes of sugar and 3.84 billion liters of ethanol in 2019/20.
Raizen, which is also a large fuel distributor in Brazil, recorded net revenues of 120 billion reais in that season. The company of late has also bid on two refineries owned by state-run Petrobras.
"They gave us a very good discount, I think," Raizen Chief Executive Ricardo Mussa told Reuters.
The sale of Biosev continues Louis Dreyfus' overhaul of its finances after it agreed in November to sell a 45% stake in its main commodity trading business Louis Dreyfus Company B.V. (LDC) to Abu Dhabi's state-owned investment firm ADQ.
Louis Dreyfus did not disclose the transaction price with ADQ at the time, but specified that at least $800 million of the proceeds would go towards repaying a $1 billion loan LDC had made previously to bail out Biosev.
Biosev's debt of around 7.7 billion reais was not included in the deal and will remain with its current shareholders.
The company said it is in talks with banks to refinance debt of 4.13 billion reais expected to remain after Raizen's cash payment of 3.6 billion reais.
The Raizen-Biosev agreement also includes an earn-out payment of up to 350 million reais to be made by Raizen to Biosev shareholders after the fifth anniversary of the closing date, which will depend on sugar and ethanol prices.
Dreyfus has been looking at options for highly indebted Biosev for years, including finding a partner or selling the company.
Since most of Biosev's debt was in foreign currency, the sharp devaluation of the Brazilian real in the last two years has worsened its debt burden.