Bunge Ltd. announced an agreement with BP PLC to create a leading bioenergy company in Brazil, one of the world's largest fast-growing markets for biofuels. The transaction is a 50/50 joint venture between BP and Bunge's Brazilian sugar and bioenergy production businesses.
Bunge will receive cash proceeds of $775 million in the transaction, comprising $700 million of non-recourse Bunge debt to be assumed by the joint venture at closing and $75 million from BP, subject to customary closing adjustments. Bunge said the proceeds will be used to reduce outstanding indebtedness under its credit facilities, resulting in a stronger balance sheet and greater financial flexibility.
The joint venture, to be called BP Bunge Bioenergia, will operate on a stand-alone basis, with a total of 11 mills located across the southeast, north and midwest regions of Brazil.
With 32 million metric tons of combined crushing capacity per year, the joint venture will have the flexibility to produce a mix of ethanol and sugar. It will also generate renewable electricity -- fueled by waste biomass from the sugarcane -- through its cogeneration facilities to power all of its sites and sell surplus electricity to the Brazilian power grid.
BP and Bunge's assets are largely complementary, with sites in five Brazilian states, including three in the key region of São Paulo. The combined business will be ranked the second-largest player in the industry in Brazil by effective crushing capacity, according to the announcement.
The deal progresses Bunge's strategy to optimize its portfolio, the announcement noted.
"This partnership with BP represents a major portfolio optimization milestone for Bunge, which allows us to reduce our current exposure to sugar milling, strengthen our balance sheet and focus on our core businesses," Bunge chief executive officer Gregory A. Heckman said. "We have a strong, committed partner in BP, as well as flexibility in the medium and long term for further monetization, with full exit potential via an [initial public offering] or other strategic route."
BP Alternative Energy CEO Dev Sanyal said, "Biofuels have a key role to play in the energy transition, and Brazil is leading the way by developing this industry at scale. In one step, this agreement will allow BP to significantly grow the size, efficiency and flexibility of our biofuels business in one of the world's major growth markets. With our shared commitment to safety and sustainability, the combination of BP and Bunge's assets and expertise will allow us to improve performance, develop options for growth and generate real value. BP Bunge Bioenergia will be well placed to play a significant part in meeting Brazil's growing demand for both biofuels and biopower."
The transaction was unanimously approved by the Bunge board of directors and is expected to close in the fourth quarter of 2019, subject to customary conditions, including receipt of required regulatory approvals.
Following completion, the aim is for BP Bunge Bioenergia to generate significant operational and financial synergies, including through scale efficiencies and by applying best practices, optimized technologies and operational capabilities across all assets of the new business.
The new business is expected to be headquartered in Sao Paulo. Mario Lindenhayn from BP will be executive chairman, and Geovane Consul from Bunge will be CEO. BP and Bunge will have equal representation on the board of directors.
Upon the closing of the transaction, Bunge will no longer consolidate its sugar and bioenergy operations in Brazil in its consolidated financial statements. Bunge will account for its interest in the joint venture under the equity method of accounting.
Itaú BBA is acting as exclusive financial advisor to Bunge, and Lefosse Advogados is acting as legal counsel.
Bunge, with headquarters in White Plains, N.Y., is a global leader in sourcing, processing and supplying oilseed and grain products and ingredients. Founded in 1818, Bunge has more than 360 port terminals, oilseed processing plants, grain silos and food and ingredient production and packaging facilities around the world.
BP is a British multinational oil and gas company headquartered in London, U.K.