TPG Buying 25% Stake of Cosan Logistics Unit

SAO PAULO (Reuters) – Cosan (CSAN3.SA)(CZZ.N), the world’s largest producer of sugar and ethanol, sold on Monday a 25 percent stake in its Rumo Logistica unit for 400 million reais ($226 million) to private equity firms Texas Pacific Group and Gavea Investimentos.

Each fund will contribute half of the money, helping replenish the logistics unit’s capital base, Cosan said in a filing to Brazil’s security regulator. The funds have an option to swap their stake in Rumo for 13.3 million shares of Cosan for a 12-month period at 30 reais each within three years after the transaction is closed.

The proceeds will help Rumo fund planned investments of 1.2 billion reais, the filing added. Cosan, which has made massive investments in distribution in recent years, is also seeking to develop its logistics unit as demand for ethanol soars in the domestic market.

Rumo will be listed in the country’s stock exchange once conditions for such move are met, the newspaper Valor Economico cited Cosan Chief Executive Marcos Lutz as saying.

The deal “effectively unlocks the hidden value of Rumo, which in our view was not fully factored in the Cosan share price,” wrote Luiz Otavio Campos, an analyst with Credit Suisse, in a note to clients.

Shares of Cosan (CSAN3.SA) fell for the first day in four on Monday, shedding 0.4 percent to 22.76 reais in Sao Paulo. The company’s American Depositary Receipts (CZZ.N) advanced 0.3 percent to $9.85 on Friday.

The broader stock market was down 0.38 percent in light trade on Monday and U.S. markets were closed in observance of Independence Day.

EFFICIENCY

In its filing, Cosan said it “believes that this alliance will help Rumo attain the highest levels of corporate governance,” adding that it should also “enhance growth and help it become one of the most efficient players in the logistics sector.”

Currently, Cosan owns, through a subsidiary, 93 percent of Rumo. With the sale to TPG and Gavea, the unit will own 75 percent of Rumo while the two funds will control 12.5 percent each. The shareholders’ accord is expected to be ready by the end of September, Cosan added.

The other 7 percent was owned by Bunge, according to Credit Suisse.

Arminio Fraga, who oversees $5.6 billion in assets, including private equity funds, as chairman of Rio de Janeiro-based Gavea, told Reuters in April that recent jitters in global markets are creating opportunities for buyout firms in Brazil to look for more interesting takeover targets.

LAVCA, a U.S.-based industry group for buyout firms, forecasts that private equity-led takeovers and fund-raising will probably rise to levels not seen since 2007. Funds in Brazil could raise up to $15 billion from investors by year-end, compared with $5 billion in 2008, according to ABVCAP, the Brazilian industry group for private equity and venture capital. (Reporting by Guillermo Parra-Bernal; Additional reporting by Alberto Alerigi Jr. in Sao Paulo; Editing by W Simon, Leslie Gevirtz)