Big Ethanol Producer in Brazil to Buy a Rival

ETH Bioenergy, a large ethanol producer in Brazil, announced Thursday that it was acquiring its debt-laden rival Brenco for an undisclosed price. The move follows similar joint ventures and mergers announced in the ethanol industry over the last few months as companies pair up to share the high capital costs needed to meet ambitious expansion goals.

Brenco, as the Brazil Renewable Energy Company is known, was founded in 2006 with the goal of producing one billion gallons of ethanol from Brazilian sugar cane by 2015. The company became a green technology darling, attracting investors like the venture capitalist Vinod Khosla, the AOL co-founder Stephen M. Case, the billionaire Ronald W. Burkle and Goldman Sachs.

The company hoped to go public in 2008 to raise $3.2 billion to pay for its expansion, but those plans were scuttled by the financial crisis, forcing it to seek other ways to raise money.

Brenco agreed to be acquired by ETH Bioenergy, which is owned Odebrecht, a Brazilian construction company, and Sojitz, a Japanese investment firm. The merged company will retain the ETH name and will be owned 65 percent by ETH shareholders and 35 percent by Brenco shareholders.

The combined company will produce three billion gallons ethanol and 2,700 gigawatts of electricity by 2012, Brenco said in a statement. It will have a crushing capacity equivalent to 40 million tons of sugar cane per harvest. The two companies have already invested about $3.8 billion and have a commitment to additional investment of $3.5 billion from 2010 to 2012 to meet their production targets.

“This strategic acquisition represents a decisive step in the growth plans of ETH and creates a leader of bioenergy, which combines competitiveness and sustainability,” José Carlos Grubisich, chief executive of ETH Bioenergy, said in a statement.

Mr. Grubisich later said at a news conference in Sao Paulo that the combined company could go public between the second half of 2011 and early 2012, Reuters reported.

This month, Royal Dutch Shell said it was forming a $12 billion joint venture with Cosan, the Brazilian sugar and biofuel giant, to produce and distribute ethanol. Cosan has a sugar cane crushing capacity of around 60 million tons a year and can produce around two billion liters of ethanol a year (528,000 gallons).

Elsewhere in the industry, Bunge, an agribusiness company, acquired the ethanol producer Moema in December for $452 million, and Louis Dreyfus, the French commodities firm, acquired Santelisa Vale in October for an undisclosed sum.

Nearly 40 percent of cars in Brazil are “flex fuel,” meaning that they can run on gasoline or 100 percent ethanol. The export market for Brazilian sugar cane ethanol could grow rapidly in the next few years if countries build the necessary infrastructure to transport the fuel. About one-third of Brenco’s ethanol is set to be exported to countries like the United States.

Sugar cane ethanol, unlike corn ethanol produced in the United States, is cheaper and requires less energy to produce. Gasoline sold in the United States contains about 10 percent ethanol to reduce pollution. Efforts to introduce a flex-fuel car fleet in the United States have failed to catch on because of a lack of infrastructure designed to transport ethanol.

There is currently a 54-cent-a-gallon tariff in the United States on Brazilian ethanol in order to protect the largely subsidized domestic corn-based ethanol industry. Despite the tariff, the United States still imports billions of gallons of Brazilian ethanol to meet its needs.

Source: The New York Times