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Form
40-F
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Item
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1.
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Press
Release dated April 24, 2008 announcing the acquisition by the
registrant’s subsidiary Cosan S.A. Indústria e Comércio of Esso Brasileira
de Petróleo Ltda. and its
affiliates.
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Press
Release
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April
24th, 2008
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Press
Release
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April
24th, 2008
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1)
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Marketing of
Fuels: the operations include the distribution of Esso fuels in the
retail and wholesale markets, and the supply of fuel to aviation
companies.
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●
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Retail Market. On
December 31, 2007, there were more than 1,500 service stations operating
under the Esso brand in 20 Brazilian states. Esso is the fifth largest
fuel retailer in Brazil, accounting for approximately 7.2% of the total
fuel market among the members of the Brazilian National
Association of Fuels and Lubes Distributors (“Sindicom”). The footprint of
the Esso service station network, concentrated in the main cities of
Brazil, particularly in the South and Southeast regions, results in an
even stronger market share in the distribution of gasoline and ethanol, of
9.7% and 9.0% respectively, among the members of Sindicom, according to
2007 data. Esso’s supply
and distribution activities are undertaken from 21 terminals, 4 of which
are 100% owned and operated by Esso, while the other 17 are joint-ventures
with other distributors. In 2007, these joint ventures and wholly-owned
terminals were responsible for 58% and 18% of Esso’s fuel throughput,
respectively. In addition, Esso’s supply and distribution activities are
complemented by throughput arrangements with third-party storage and
distribution centers in 21 locations across the country, which accounted
for 24% of Esso’s fuel throughput during the period. Cosan and
ExxonMobil
entered into a long term trademark license agreement that will allow Cosan
to use the Esso trademark, the oldest and most traditional trademark for
fuels in Brazil.
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●
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Wholesale Market and
Industrial Clients. Distribution in this market includes supply to
(i) independent retailers, (ii) ethanol and sugar mills, (iii) dealers,
and (iv) transportation companies, among others. This activity is
complementary to Esso’s retail distribution, adding scale and providing
high return on employed
capital.
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●
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Aviation Market. Sale
of fuels to aviation companies is carried out by Esso in 7 of the main
airports in Brazil (Guarulhos, Galeão, Campinas, Brasília, Pampulha,
Recife and Curitiba), making Esso responsible for a market share of
approximately 12.0% in 2007 according to Sindicom
data.
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2)
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Lubes and
Specialties. The acquired assets include one industrial plant
located in Rio de Janeiro, and a controlling stake in a lubes terminal in
Duque de Caxias. ExxonMobil is the world leader in the lubes segment,
accounting for 12.0% of the world market through its brands, particularly
Mobil 1. Cosan and ExxonMobil have also entered into long term agreements
that will allow Cosan to resell Mobil 1 and use other Esso and Mobil lube
brands in Brazil. In 2007, ExxonMobil reached an 11.0% market share in the
Brazilian lubes market, according to Sindicom
data.
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1)
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Strategic
Motivations
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●
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Consolidation
of the Distribution Sector. The fuels distribution sector in Brazil
has been going through intense consolidation, and the 5 largest players
account for approximately 76% of the market, according to Sindicom data
for 2007. The fragmentation within ethanol producers, the reduced number
of large distributors buying ethanol, and the access to consumers through
the service stations network are key drivers that make the present
transaction strategic to
Cosan;
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Press
Release
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April
24th, 2008
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●
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Business
Diversification. This acquisition will assure a leadership position
to Cosan in the growing markets of ethanol and fuels distribution in
Brazil, and will allow the company to increase its portfolio with products
compatible with its productive and logistics assets;
and
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●
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Secure Distribution Channel
for Ethanol. The volume of ethanol sold has begun
to exceed gasoline volume in Brazil. According to data of the
Brazilian National Association of Petroleum, Natural Gas
and Biofuels (“ANP”), 1,409 million cubic meters of gasoline and 1,434
million cubic meters of ethanol (hydrous and anhydrous) were consumed in
the month of February 2008. From 2003 through 2007, annual
ethanol consumption grew 30.2%, compared to only
2.8% for gasoline. Positioning Cosan in a relevant manner in
the fuels distribution sector in Brazil is an important step for Cosan in
the consolidation of ethanol as the principal fuel in the Brazilian
market, and the ability to enhance its market reading even further becomes
more and more strategic.
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2)
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Favorable Environment
for the Fuels Distribution Sector in
Brazil
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●
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Improved Regulatory
Environment. Several measures taken by the Brazilian regulatory
agencies have significantly contributed to inhibiting unorthodox
practices, such as the sale of adulterated fuels and tax evasion, among
others. Among these measures, we highlight (i) Resolution No. 36,
published by ANP in 2005, which defines the specifications of ethanol
pigmentation, (ii) Resolutions No. 5 and 6, published by ANP in 2006,
which establish minimum quality standards for gasoline and ethanol, (iii)
the launch by ANP in 2006 of the National Program for the Monitoring of
Fuels Quality, and (iv) Resolution No. 7, published by ANP in 2007,
requiring distributors to sell fuels only to agents accredited by ANP, and
determining that service stations operating under a certain brand can only
purchase fuels from distributors of the same brand. As a result, the
market share from distributors that are Sindicom members in the total
volume of fuels sold increased from 82.1% in 2006 to 83.6% in 2007. This
increase was particularly stronger within ethanol, where the market share
from Sindicom members went from 46.0% to 58.0% in the same period;
and
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●
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Growth in Car Sales.
The expansion of the Brazilian economy has resulted in record car sales in
Brazil in recent years, and of flex-fuel cars in particular. Sales of new
vehicles in Brazil reached 2.4 million units in 2007 according to the
National Association of Vehicle Manufacturers (“Anfavea”),
an increase of 14.4% when compared to 2006. Sale of flex-fuel vehicles
represented more than 85% of total light vehicle sales during the same
period. In spite of the strong expansion, the Brazilian fleet still shows
significant growth potential when compared to other countries with 8.0
inhabitants per vehicle, compared to 5.7 in Argentina, 5.0 in Mexico and
1.2 in the United States.
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Press
Release
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April
24th, 2008
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3)
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Potential
Synergies
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●
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Logistics
Rationalization. Cosan will seek to benefit from synergies already
identified through the rationalization of the combined logistic network
given the geographical proximity between its mills and the Esso
distribution network, both of which are concentrated in the Southeast
region of Brazil;
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●
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Inventory Management
Optimization. A presence in the distribution of
fuels will allow Cosan to seek synergies related to its ethanol
inventories. Unlike gasoline, the production of ethanol
is fragmented, presenting more volatility in prices and
volumes. With this acquisition, Cosan expects to be better
positioned in relation to ethanol market moves;
and
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●
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Reduction of Margin
Volatility. Through the combination of margins related
to ethanol production and distribution, Cosan expects to reduce the
volatility of its business, hedging itself against ethanol price
fluctuations coming from seasonality and the fragmentation of ethanol
producers. This is
particularly important to Cosan and its growth strategy, given that
attractive acquisition opportunities arise during periods of low prices to
ethanol producers.
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Press
Release
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April
24th, 2008
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COSAN
LIMITED
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||||||
Date:
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April
24, 2008
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By:
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/S/
Paulo Sérgio de Oliveira Diniz
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Name:
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Paulo
Sérgio de Oliveira Diniz
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Title:
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Chief
Financial Officer and Investors Relations Officer
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