Consolidation In Brazil

Brazilian state oil company Petrobras is making another big consolidation move in that country's petrochemical sector through the purchase of Suzano Petroquímica. The deal will be worth roughly $1.4 billion when completed.

Petrobras is offering $684 million for Suzano's common shares and another $425 million for its preferred shares. These stakes account for the 76% interest in Suzano held by Suzano Holding, the entity that controls Suzano. A subsequent tender offering for the remaining shares will cost Petrobras another $300 million.

Suzano earned $107 million before taxes on about $1.3 billion in sales in 2006. The company, with 685 million tons of annual capacity, is the largest polypropylene producer in Latin America. Its polypropylene business had been the PoliBrasil joint venture with global leader Basell until Suzano bought out its partner's interest in 2005.

Suzano also owns a 33% interest in Rio Pol??meros, which started up a 540 million-ton ethylene and polyethylene complex in the state of Rio de Janeiro in 2005. Petrobras already held a 17% interest in that facility. Suzano owns a 7% stake in Petroqu??mica Uni??o (PQU), which operates a petrochemical complex in the state of S??o Paulo. Petrobras' existing stake in PQU is 17%. Suzano also owns a 20% interest in synthetic rubber maker Petroflex.

Petrobras says the acquisition will help consolidate the Brazilian petrochemical industry and help pave the way for an $8.3 billion petrochemical complex planned by Petrobras and local industrial group Ultrapar for Rio de Janeiro. Earlier this year, Petrobras, Ultrapar, and Braskem announced the joint purchase of petrochemical maker and refiner Ipiranga for $4 billion.