Cosan Pays Up for Railroad Stake

Cosan has struck a BRL896.5m ($525.7m) deal to acquire 5.7% of railroad operator America Latina Logistica (ALL), paying a premium to enter the controlling group of a key piece of Brazil’s agricultural transportation infrastructure. The Brazilian sugar and ethanol producer is set to purchase 38.98m shares of ALL from shareholders Riccardo and Julia Arduini and Global Investment Partners. According to Barclays Capital, the per share price represents a 104% premium over ALL’s previous close. “As we become part of the shareholder’s [controlling block] agreement, the premium we pay today will be a good investment. It is important to be close to the decisions of this group,” Marcelo Martins, Cosan’s CFO, said in a conference call. Officials highlighted the existing relationship between Cosan and ALL in the Rumo transportation venture. They note there are important improvements that can be made at ALL, whose railroad system is the primary means to get Cosan products to Southeastern Brazilian ports. The acquisition is to be paid for in cash, though officials note Cosan is studying the possibility of putting its new ALL stake into an SPV that could take on additional investors, and possibly issue debt and make other acquisitions. New equity at this level is not an option, they say. The offer values ALL at BRL15.7bn, or an implied enterprise value to 2011 Ebitda of 10.5x taking last year’s BRL1.49bn Ebitda figure at year-end. Barclays puts the EV/Ebitda multiple at 11.8x, using an Ebitda calculated for the last 12 months, and points out that comparable transactions in the industry have usually gone for 7.5x to 15.0x EV/ LTM Ebitda. The shop adds that the deal is a credit positive since it diversifies the company’s revenues away from commodities and offers Cosan bondholders exposure to Brazil’s railroad business. The deal depends on the approval of regulators and shareholders. No outside advisors were used, Cosan officials say on the call. Cosan says 34.00m of the 38.98m share