Cosan to Acquire Zanin - Analyst Blog

Sugar and ethanol producer Cosan Limited (CZZ) entered into a definitive agreement to acquire Usina Zanin Acucar e Alcool Ltda. (Zanin), a sugarcane producer based in the Araraquara region. Completion of the transaction is subject to satisfaction of certain required conditions.

As per the memorandum of understanding signed between the companies, Cosan will acquire all the outstanding shares of Zanin for R$142 million as well as assume debts of approximately R$236.6 million. Cosan intends using the available cash to fund the transaction.

Through the acquisition Cosan will gain access to Zanin's industrial and agricultural operations and a greenfield project in the city of Prata, State of Minas Gerais. Zanin currently has 2.6 million tons of sugarcane crushing capacity.

Cosan is the largest sugar and ethanol producer in Brazil and ranks third in sugar and fifth in ethanol production in the world. Apart from its core operations, the company is also engaged in energy production from sugarcane bagasse.

Fuel distribution is another of Cosan's businesses with the company aiming to become the third largest distributor in Brazil after the consummation of the recently announced joint venture with Shell International Petroleum Company Limited.

Cosan, over time, has been growing through acquisitions and other expansion strategies. We believe the company is well positioned to benefit from the acquisition of Zanin by gaining operational and logistics synergies.

Besides expectations of growing sugar and ethanol businesses, energy co-generation business is also expected to get a boost from an increase in installed capacity with the addition of 6 new projects by 2012. Annual capacity is expected to surge to 1,213 MW.

We currently maintain a Neutral recommendation on the stock.