Shell International Petroleum Company Limited and Cosan SA (Cosan) have signed a non-binding memorandum of understanding (MoU) with the intention of forming an approximately $12 billion joint venture in Brazil for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels.
Under the terms of the MoU, both companies would contribute certain existing Brazilian assets to the joint venture. In addition, Shell would contribute a total of $1.625 billion in cash, payable over two years.
The joint venture would enable the companies to establish a scalable and profitable position in sustainable biofuels by building a market-leading position in the most efficient ethanol producing country in the world. With annual production capacity of about two billion litres and significant growth aspirations, the joint venture would be one of the world’s largest ethanol producers. In addition, the inclusion of Shell’s equity interests in Iogen and Codexis would potentially enable the joint venture to deploy next-generation biofuel technologies in the future.
The deal would also enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil. With a network of about 4,500 retail sites and a total annual throughput of about 17 billion litres, the joit venture would have a leading position in the fuels retailing market in Brazil, with strong potential for synergy capture and future growth.
The companies will now maintain exclusive negotiations towards a binding joint venture agreement, which will be subject to final transactional documentation, due diligence, agreement between the two parties on important sustainability issues, regulatory approvals and respective corporate approvals.
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