Brazil-based sugar and ethanol producer, Cosan Limited (CZZ), to gain a controlling interest in Latin America’s largest independent logistics company, America Latina Logistica (ALL), proposed to the latter a stock-merger with its subsidiary, Rumo Logistica Operadora Multimodal S.A. (Rumo). The news sent Cosan’s share price up 1.25% on Feb 24.
The proposal values each share of ALL at R$10.184, reflecting a 56% premium over its closing price on Feb 21. The incorporation of ALL’s shares by Rumo will create the largest railway and logistics company in Latin America with a combined value of R$10.96 billion ($4.7 billion). Existing shareholders of Rumo and ALL will be allotted a 36.5% and a 63.5% stake, respectively, in the combined company, with Cosan holding the right to appoint the majority of the board of directors.
The merger will enable Cosan to gain easy access to ALL’s transportation services including logistics, intermodal transport, port operations, movement and storage of merchandise, administration of storage facilities and general storage. ALL currently operates roughly 12,900 km of rail tracks, 26,819 rail cars, 916 locomotives, and runs through four active ports of the country. The company is responsible for shipping roughly 80% of Brazil’s agricultural exports.
The completion of the transaction is subject to fulfillment of certain conditions including the approval of ALL’s board of directors and certain regulatory approvals.
The association will also require Rumo to be registered as a publicly held company. For this, Cosan plans to propose to its board of directors to spin off its logistics operations from the rest of the business. Two new companies, Cosan Energia and Cosan Logistica, will be formed and listed on the exchange. Cosan Logistica will be responsible for the operations of Rumo Logistica while Cosan Energia will combine operations of Raizen Energia, Raizen Combustiveis, Comgas, Radar and Cosan Lubrificantes.
Cosan currently has a market capitalization of $3.3 billion and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Otter Tail Corporation (OTTR), Exelon Corporation (EXC) and Northwestern Corporation (NWE). While Otter Tail carries a Zacks Rank #1 (Strong Buy), both Exelon and Northwestern Corporation hold a Zacks Rank #2 (Buy).
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