Sept. 15 (Bloomberg) -- Votorantim Celulose & Papel SA and Aracruz Celulose SA shareholders agreed to merge the two companies to cut costs and gain global market share.

Arainvest Participacoes SA, which holds 28 percent of Aracruz, agreed to share control of the two companies with Votorantim Group, which controls VCP, according to a filing to Brazil's stock regulator today. Arainvest will pay 530 million reais ($292 million) to Votorantim Group, which also is an Aracruz shareholder, Sao Paulo-based VCP said in the statement.

Billionaire Antonio Ermirio de Moraes's Votorantim Group seeks to consolidate Brazil's pulp industry to gain market share, creating a company that will control almost a third of the world's eucalyptus-pulp market. The move will help cut costs and allow the company to push for higher prices as demand for paper grows in Asia, Banco Modal SA's Eduardo Roche said.

``A gain of scale like this is very important in this industry,'' said Roche, an investment analyst at Rio de Janeiro- based Modal, which manages 200 million reais. ``The company will have more clout to negotiate long-term contracts.''

VCP, Brazil's third-biggest pulp maker, said Aug. 6 it would pay 2.71 billion reais to Arapar SA to double its stake in Aracruz, the country's biggest pulp producer, from 28 percent to 56 percent as part of a plan to merge the two companies.

Votorantim Group and Arainvest will each own half of the voting stock of a holding company that will control VCP and Aracruz, VCP said. Votorantim Group will own 57.23 percent of the holding company's total stock and Arainvest will hold the rest.

Savings

The merged company will be able to produce 8 million metric tons of pulp by 2012, up from a combined 4 million tons of capacity last year, Votorantim Group said last month. The merger will generate savings of 4.5 billion reais, the group said.

Aracruz is the world's biggest producer of eucalyptus pulp, whose shorter fibers produce higher-quality paper.

The combined global market share of VCP and Aracruz for eucalyptus pulp will reach 30 percent this year, Votorantim Group said. The companies would have 8 percent of the market for all types of pulp.

Votorantim Group, Brazil's biggest industrial group, produces pulp, cement, aluminum, specialty chemicals and other goods.

Arainvest is a holding company controlled by billionaire Joseph Safra. Arapar is a holding company controlled by the Lorentzen family. Its shareholders include former Brazilian central bank President Arminio Fraga's Gavea Fund.

Votorantim last month said Credit Agricole SA's Calyon unit, Banco Santander SA and HSBC Holdings Plc had committed to financing the deal.

VCP's shares fell 1.98 reais, or 5.4 percent, to 34.95 reais in Sao Paulo trading today, while Aracruz lost 55 centavos, or 6 percent, to 8.60 reais. VCP has declined 36 percent this year and Aracruz has plunged 33 percent.

To contact the reporters on this story: Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net

Last Updated: September 15, 2008 17:46 EDT