Government articulates the sale of ALL to Cosan

The federal government articulates behind the scenes to change the current controllers of ALL (America Latina Logistics), according to sources heard by the “Estado”. The entry of new investors in the railway company is seen as a good thing by the government, since these investors could make a capital injection in the group required for investment in the company’s network, which accounts for about 60% of the grain outflow of the country. This Friday, the National Bank for Economic and Social Development (BNDES) meets with leaders of Cosan. The bank, which holds ALL shares, wants to know how willing the group is to resume talks to join the control block of the railroad, said the same sources.

The group, led by businessman Rubens Ometto Silveira Mello, in February 2012, proposed to join the control block of ALL. But after a year and a half of talks, no agreement was made (see article below). In October last, ALL filed a lawsuit against Rumo (controlled by Cosan), questioning agreement signed with the ex-partner in sugar transport.

The government cannot just take the company’s concession because it knows that it would cause a real logistical chaos in an election year, says a government source. But it understands that if there were changes in the management and governance of the company, it would be the best case scenario, the source says.

Cosan is considered the most tangible solution, but other investors are also being evaluated, such as trading companies (companies that export and import commodities). Ometto was probed on Wednesday in Brasilia when discussing railroad concessions with President Dilma Rousseff. Inquired, Cosan did not comment on the matter.

Crops. The government’s concern is with the outflow of the crop. The accident in November, when there was a derailment of train cars of ALL leaving eight people dead, in São Jose do Rio Preto (São Paulo state), rose a yellow flag. Transport minister César Borges said that ALL had not done the necessary maintenance investments on the railroad and asked for the National Land Transportation Agency (ANTT) to increase surveillance. At the time, ALL issued a statement denying problems with the maintenance of the railroad.

An agreement between ALL and Cosan is still far from done, but ALL itself is trying to raise the white flag. The company hired Pérsio de Souza, from Estáter (firm specialized in mergers and acquisitions), to find a solution for the company. Souza, who represents the shareholders of the control block, tried several times to contact Cosan for an agreement, still to no avail.

It is much more advantageous for Cosan to seal a peace deal than to take the fight forward, said a source. The dispute would last a long time and the company would not be able to restore eventual losses.

In the contract signed in 2009 between the two companies, Rumo committed to invest approximately US$ 503,7 million in infrastructure of locomotives and cars for the outflow of sugar – about 90% of these contributions were already made. However, ALL has not made the necessary investments. And it’s using part of this sugar structure for the outflow of soy, says the government source.

ALL. Inquired, ALL says, through his spokesperson, to be unaware of the government’s intention to seek change in control of the company. The company said yesterday, through a material fact, that the group and Rumo are involved in disputes about their business relationship, subject to confidentiality obligations, and evaluates alternative solutions with respect to such disputes, without being able to foresee at present the results thereof, in response to the article published yesterday in the Valor Econômico about the possible resumption of talks between the two companies.

Audit request unraveled agreement between the two groups

Negotiations between ALL and Cosan for the ingression of Rubens Ometto Silveira Mello in the control block of the railroad company unraveled in August last year, when the infrastructure company required a due diligence (audit) in the railroad accounts, said government sources.

The shareholders of the railroad were also against a capital increase proposed by Cosan. They also stepped back on the decision to have the group in the control block of the company.

By announcing in February 2012 that they would enter the control block of ALL, Cosan made an offer of US$ 376,3 million to acquire 49.1% of the control shares of the railway company, corresponding to a total of 5.6% of the total capital of the company.

Originally, the proposal was made for the purchase of shares of shareholders Riccardo Arduini, dealership counselor, his wife Julia Dora Koranyi Arduini and GMI (Global Market Investments), representing the president of the board of ALL, Wilson De Lara.

However, for the operation to be complete, it depended on the approval of all shareholders, including the Previ (Pension Fund of Employees of Banco do Brasil), FUNCEF (Caixa Econômica Federal), the arm of BNDES participation funds (BNDESPar) and BRZ ALL. Since not covered by the offer by Cosan, these funds were willing to stop the operation.

There was a rearrangement in which the offer was redistributed to all shareholders. In this new agreement, the initial sellers (Arduini and De Lara families) agreed to relinquish some of their shares in favor of the funds. That was the way found so that everyone could split the cake slice, informed a source.
During these negotiations, Cosan would not take control, but have proposed a capital increase in order to expand the company. The proposal, which was virtually closed to be announced to the market, was barred by the shareholders after the audit request.