* Guaiba gives CMPC access to Brazil, No. 1 pulp producer
* Aracruz to sell Guaiba to Chile's CMPC to cut debt
* CMPC seeks to sell up to $500 mln each in stock, debt
* S&P may downgrade CMPC as acquisition to boost debt
* Shares of CMPC, Fibria jump; Aracruz stock falls (Adds Standard & Poor's statement on CMPC, CMPC seeks to raise up to $1 bln)
By Alonso Soto and Guillermo Parra-Bernal
SANTIAGO, Sept 23 (Reuters) - Chilean forestry group CMPC CAR.SN said it is in talks to buy a unit of Brazilian giant Aracruz ARCZ6.SAARA.N for $1.4 billion, which would give it access to the world's cheapest pulp producing market.
Santiago-based CMPC said in a regulatory filing late on Tuesday that it signed a memorandum of understanding with Aracruz to buy the Guaiba unit. Under the accord, Fibria VCPA3.SA, the company formed after Aracruz's takeover by rival VCP, will hold exclusive talks with CMPC until a deal is struck.
The purchase underscores the cost advantages and high forestry potential that pulp companies in Brazil, the world's top pulp producer, have relative to rivals in North America and Europe. Brazilian pulp makers are operating at full capacity and opening new factories, even as the global market is facing its worst downturn in six decades.
"This makes sense for the Chileans because they are entering a cost-competitive market that has outstanding growth prospects going forward," said Jayme Alves, a paper and pulp analyst with Sao Paulo-based Spinelli Corretora.
The transaction would allow CMPC, controlled by Chile's Matte family, to become the world's second-largest pulp producer by 2013, with capacity of 3.8 million metric tons, according to estimates provided by Sao Paulo-based Itau Securities.
Guaiba has pulp, forestry, paper and wood businesses that include a plant to process cellulose and another to produce paper. The transaction also includes 212,000 hectares of land of which 60 percent is planted with eucalyptus trees ready to be harvested.
Signs of a recovery in the global pulp and paper market are emerging and companies around the world are boosting output as prices rise worldwide. Fibria will boost prices for the fifth time this year in October, indicating it has gained pricing power amid a revival of demand, a person familiar with the decision told Reuters on Tuesday.
Global pulp inventory fell to the lowest level in more than seven years this month and prices have recovered mainly due to China's growing need for fiber to accommodate urbanization.
CMPC shares surged 8.5 percent to 17,962 Chilean pesos on Wednesday, the biggest intraday jump since at least August 2007. The stock has gained 14 percent in the 12 months that ended on Sept. 22.
Standard and Poor's said it may downgrade CMPC's A-minus rating within the next 90 days as the deal might increase the company's debt.
CMPC's board will ask shareholders to approve a share sale plan of $500 million and a bond issuance worth up to $500 million to fund the acquisition, according to a regulatory filing.
"The very positive outlook for the pulp market, as well as CMPC's efficient management lead us to highlight this as a good acquisition for the company," analysts at Bci Corredor de Bolsa said in a note to clients on Wednesday.
The Guaiba purchase would be one of the largest-ever acquisitions by a Chilean company and comes as the country grapples with the ravages of the global financial storm.
CMPC has a presence in Argentina, Colombia, Mexico, Peru and Uruguay and, before the Guaiba acquisition, was the second-largest Chilean pulp maker, behind Copec's COP.SN Arauco forestry unit.
Itau said CMPC's offer would value Guaiba at almost half the $3,000 per metric ton of pulp produced with existing assets and below the $2,400 per ton at which the brokerage values parent Fibria's output per ton.
"Guaiba valuations might have been distorted by the size of Aracruz debt," said Alves of Spinelli.
Common shares of Fibria rose 1 percent to 29.99 reais in Sao Paulo. Aracruz reversed early gains and fell 0.3 percent to 4.02 reais.
Aracruz management had considered selling the Guaiba plant for a long time to help trim indebtedness.
Aracruz was one of several companies that posted hefty derivatives-related losses last year, when Brazil's currency tumbled 33 percent against the dollar amid the global financial crisis.
"In our view, the deal does not make strategic sense for Fibria," said Itau Securities analyst Marcos Assumpcao in a note to clients. It is "bringing a new competitor to Fibria's backyard ... and sacrificing Fibria's project with the fastest growth potential."
Fibria Chief Financial Officer Marcos Grodetzky said in July the company will rely on asset sales and the freeze of some investments to cut net debt to the equivalent of 5.2 times its EBITDA, or earnings before interest, taxes, depreciation and amortization, next year.
The ratio of net debt to EBITDA is expected to be 7.7 this year. Chief Executive Carlos Aguiar also said Fibria's factory capacity should remain unaltered for up to three years.
(Additional reporting by Manuel Farias and Antonio de la Jara; Editing by Dave Zimmerman, Andre Grenon, Phil Berlowitz)