SAO PAULO (Reuters) - Brazilian sugar and ethanol firm Cosan SA proposed a takeover on Monday of America Latina Logistica SA in a $4.7 billion deal that would form Latin America’s largest railway and logistics company.
Under the terms of the deal, shareholders of ALL ALLL3.SA, as America Latina Logistica is commonly known, would own most of the capital of the combined entity, while Cosan (CSAN3.SA) would name the majority of its board members.
In a separate securities filing, ALL said the combined value of the new company would total 10.96 billion reais ($4.7 billion), of which ALL shareholders would hold 63.5 percent.
Cosan would offer 10.184 reais per ALL share, a 56 percent premium to its closing price on Friday.
The new company will merge ALL’s assets into Cosan’s Rumo Logistica SA unit, Cosan said in a securities filing.
“Rumo is a cash generator, so the resulting company will have good cash flow,” said Cosan Chief Executive Marcos Lutz on a call with analysts.
“ALL is a unique asset. Rail is the most efficient, in terms of costs, to transport in an area where there are no waterways.”
Cosan’s Chief Financial Officer Marcelo Martins said the takeover proposal was not a unilateral one and he expected the plan to be approved.
By creating a bigger player in an area that was still underdeveloped by Cosan, chairman and controlling shareholder Rubens Ometto is further boosting a conglomerate with interests ranging from agribusiness to fuel distribution and land management.
The proposed merger comes as Brazil grapples with improving and expanding its aging infrastructure.
The move follows a long struggle by Cosan to find a way to combine its logistics assets with ALL, which for years was the largest railway operator in Latin America. Cosan relies on ALL to transport much of its sugar to port in Santos.
Ometto attempted in August to buy a controlling stake in ALL but was rebuffed by the company.
ALL shares soared as much as 14 percent to 7.45 reais in trading on Sao Paulo’s stock exchange, while Cosan shares rose 6 percent to 36.60 reais.
However, ALL is down almost 28 percent over the past year, while Cosan has shed about 21 percent in the same period.
Under the proposed deal, which has to be approved by the board and shareholders of ALL, Cosan will spin off its logistics unit known as Cosan Logistica and list its shares on the Sao Paulo exchange.
The company will also list the shares of Cosan Energia SA, a unit that houses Cosan’s sugar and ethanol, fuel distribution, natural gas distribution, lubricants and land management divisions, the filing added.
Lutz said that if ALL approves the deal, which he expects, the capacity contract that Rumo holds with ALL to transport its sugar to port would cease to exist.
The contract has been the focus of a legal dispute between the two companies in recent months after ALL stopped transporting Rumo’s sugar, driving up its freight costs.
ALL said it stopped service because Rumo had ceased payments on the contract. A merger may offer a way out of the costly lawsuits that would otherwise be fought out in the courts.
Additional reporting by Caroline Stauffer; Editing by Lisa Von Ahn, Guillermo Parra-Bernal and Sophie Hares