By Tatiana Bautzer, Carolina Mandl and Alberto Alerigi
SAO PAULO (Reuters) - Brazil's Suzano Papel e Celulose SA (SUZB3.SA) won the battle to acquire larger rival Fibria Celulose SA (FIBR3.SA), creating the world's biggest wood pulp producer while shelving expansion plans.
Controlling shareholders Votorantim Participações SA and BNDESPar, the investment arm of Brazilian state development bank BNDES, on Friday accepted Suzano's offer worth 36 billion reais (7.89 billion pounds) in cash and shares at current prices.
An aggressive rival all-cash bid from Netherlands-based Paper Excellence fell short as Votorantim and BNDES judged the proposal lacked necessary funding.
Suzano shares jumped 23 percent, while Fibria shares fell 10 percent on investor disappointment that it had passed on Paper Excellence's richer valuation.
"At current share prices, we believe the transaction is more favourable to Suzano's minority shareholders than Fibria's," Credit Suisse analyst Ivano Westin wrote in a note to clients.
The analysts estimate an implied offer price of 63.30 reais per share, lower than Fibria's closing price on Thursday of 71.56 reais.
The new company will lead world pulp production with annual capacity of 11 million tonnes, more than double the 5 million tonnes of capacity at the world's second-largest producer, International Paper Co (IP.N), according to consultancy Poyry.
The deal strengthens the Brazilians' pricing power after years of surging capacity, when pulpmakers in one of the world's highest-yielding eucalyptus regions fought for market share with competing expansion plans.
Suzano's chief executive, Walter Schalka, told a news conference that all of Fibria and Suzano's expansion projects would be suspended until the combined company reduces leverage.
Schalka said debt should fall to 3.5 times earnings before interest, depreciation and amortisation by year-end, adding that the tie-up should yield cost savings of around 10 billion reais.
The deal marks the biggest divestment in BNDES' history, after it amassed large stakes in Brazilian companies during an era in which the government engineered "national champions."
The bank, which had a 29 percent stake in Fibria and 7 percent stake in Suzano, will receive 8.5 billion reais in cash and keep an 11 percent stake in the new company.
Fibria's controlling shareholders decided to pass on the all-cash Paper Excellence bid, worth nearly 40 billion reais, after waiting for two months to receive documents proving the offer was funded, according to people familiar with the matter.
Votorantim and BNDES were afraid the company, controlled by the Wijaya family, which only presented enough guarantees to pay a $1.2 billion break-up fee, would not be able to pull off the whole deal, including the buyout of minority shareholders.
BNDES director Eliane Lustosa said Paper Excellence never presented a firm offer. "They did not present financing or guarantees for the bid," she said.
It was unclear why BNDES and Votorantim did not wait for Paper Excellence to get the financing. The company, controlled by the same owners as Asia Pulp & Paper, last year acquired smaller rival Eldorado Brasil Celulose SA for 15 billion reais.
Banks JPMorgan Chase & Co, BNP Paribas, Mizuho Bank Ltd and e Rabobank NA will provide $9.2 billion in financing for Suzano.
The deal is subject to antitrust approval in Brazil, the United States, the European Union and China, Fibria said. An escape clause would allow Suzano to call off the deal for a 750 million reais fee if regulators force the sale of more than 1.1 million tonnes of capacity.
(Additional reporting by Rodrigo Viga Gaier in Rio de Janeiro and Paula Laier in Sao Paulo; Editing by Brad Haynes, Daniel Flynn and Leslie Adler)