Cosan Ltd., Royal Dutch Shell Plc’s partner in the world’s top sugar-cane processor, is forecast by analysts to rally as billionaire founder Rubens Ometto gives up 10-1 share voting rights.
The discount investors demand to hold shares of the overseas parent relative to operating unit Cosan SA Industria & Comercio may disappear, down from about 13 percent now, according to HSBC Holdings Plc and Banco do Brasil SA. The company, located in Hamilton, Bermuda, has a sole holding of 59.3 percent of Sao Paulo-based Cosan SA. The Bermuda firm was worth $4.54 billion as of Dec. 14, while the stake was worth 2.2 percent more at $4.64 billion, data compiled by Bloomberg show.
Ometto, who turned Cosan into a sugar and fuels conglomerate through 10 takeovers in five years, is seeking to simplify the ownership structure after triggering a backlash among shareholders when he created Cosan Ltd. (CZZ:US) in 2007 to sell $1.1 billion in stock without diluting his holdings. He said last month he will announce a detailed plan next year to delist either the holding company or Cosan SA. Investors will wait for the plan before buying the stock, HSBC’s Pedro Herrera said.
“It’s a punitive discount that tends to zero if Rubens goes ahead with the plan,” Herrera, a New York-based analyst at HSBC, said by telephone. “Rubens is seeking to leave the problems with shareholders and corporate governance behind.”
The gap between the shares has narrowed from about 35 percent when the holding company was created in 2007, Herrera said. Cosan SA trades at 22.9 times its forecast earnings for next year, compared with 19.7 times for the parent, Bloomberg data show.
Cosan SA, which runs the Raizen sugar and fuels venture with Shell and controls Brazil’s largest natural gas distributor, has risen 30 percent in dollar terms in Sao Paulo this year, while Cosan Ltd. rallied 51 percent in New York. Sao Paulo-based Sao Martinho, Brazil’s second-largest maker of the sweetener by market value after Cosan, is up 30 percent and Mannheim, Germany-based Suedzucker AG, the world’s top sugar maker, has gained 25 percent.
Cosan SA rose 2.2 percent to 40.93 reais at 2:45 p.m. in Sao Paulo, while Cosan Ltd. rose 0.8 percent to $16.93.
Shell and Cosan SA agreed to combine Brazilian sugar, ethanol and fuel distribution assets into Raizen in 2010 following Cosan’s $826 million acquisition of Irving, Texas- based Exxon Mobil Corp.’s network of service stations in the country in 2008. Raizen owns 24 sugar and ethanol mills and 4,700 gas stations in Brazil.
This year, Cosan bought 60.1 percent of Cia. de Gas de Sao Paulo, or Comgas, Brazil’s largest distributor of natural gas, for $1.8 billion from BG Group Plc. It has also offered to buy 5.7 percent of Brazilian railroad operator ALL America Latina Logistica SA. (ALLL3)
While Ometto owns 39.3 percent of parent Cosan Ltd., the Class B stock gives him 10 votes for every 1 Class A stock that his minority shareholders own.
A press official representing Ometto declined to comment on the delisting plan when contacted in Sao Paulo.
Grupo Rezende Barbosa, a holding company that received Cosan SA stock as payment for four mills in 2009, is the company’s second-largest shareholder with a 10.9 percent stake. Brazilian private equity fund Gavea Investimentos, founded by former central banker Arminio Fraga, is the second-biggest shareholder at parent Cosan Ltd., with 14.6 percent.
The complexity of the operation and the need to reach accords with other major shareholders may mean Ometto will take longer to carry out the restructuring than expected, said Andre Facury, who helps manage 2 billion reais ($959 million) at Perfin Investimentos including Cosan SA and Cosan Ltd. stock.
“Maybe Ometto is being overambitious when he says he will announce it next year,” Facury said. “Still, it’s a no-brainer he will go ahead. It’s just a matter of when.”
The tycoon will likely opt to delist the overseas parent because Cosan’s operations are based in Brazil and the Sao Paulo-traded shares are more liquid, said Henrique Koch, an analyst at Banco do Brasil SA. (BBAS3)
“The creation of the super vote was not forgotten, but forgiven because Cosan is doing so well,” Herrera said. “The end of the super vote will unlock value as Ometto puts it behind.”
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