At the same time, the company will continue to pursue broad market opportunities for specialty industrial enzymes within the areas of alternative fuels, specialty industrial processes, and health and nutrition, with a primary focus on enzymes for the production of biofuels.

The combined company will be headquartered in Cambridge, Massachusetts and have research and operations facilities in San Diego, California; Jennings, Louisiana; and Gainesville, Florida. The combined company plans to bring its first US commercial-scale cellulosic ethanol plants into production in late 2009.

Diversa possesses the world’s broadest array of enzymes derived from bio-diverse environments as well as patented DirectEvolution technologies. The company recently entered into a new 10-year research and development partnership with Syngenta focused on the discovery and development of a range of novel enzymes to convert pre-treated cellulosic biomass economically to mixed sugars for fermentation into biofuels. (Earlier post.)

Celunol is a privately held company headquartered in Dedham, Massachusetts moving rapidly to commercialize its proprietary technology for producing ethanol from a wide array of cellulosic biomass feedstocks, including bagasse, agricultural waste, wood products and dedicated energy crops.

The key element of Celunol’s technology is genetically engineered Escherichia coli bacteria that can ferment both C6 (hexose) and C5 (pentose) sugars present in cellulosic biomass.

Celunol recently commenced operations of the nation’s first cellulosic ethanol pilot facility in Jennings, Louisiana and expects to complete a 1.4 million gallons-per-year, demonstration-scale facility to produce cellulosic ethanol from sugarcane bagasse and specially-bred energy cane by the end of 2007. (Earlier post.)

In addition, Celunol’s process technology has been incorporated into BioEthanol Japan’s 1.4 million liter-per-year cellulosic ethanol plant in Osaka, Japan—the world’s first commercial-scale plant to produce cellulosic ethanol from wood construction waste. (Earlier post.)

Under the terms of the merger agreement, Diversa will issue 15,000,000 shares to acquire the outstanding equity of Celunol. In addition, Diversa will provide Celunol with up to $20 million in debt financing to fund its operations prior to the closing, which will be assumed by Diversa at the closing.

On a pro-forma, fully diluted basis, Diversa stockholders will retain ownership of approximately 76% of the combined company, and Celunol stockholders and option holders will own approximately 24%. The merger agreement has been unanimously approved by each company’s board of directors and is subject to approval by their respective stockholders, regulatory agencies, and the satisfaction of other customary closing conditions. The transaction is expected to be completed by the end of the second quarter of 2007.

Carlos A. Riva, the president and chief executive officer of Celunol, will become the chief executive officer of the combined company and a member of its board of directors upon closing of the merger. John A. McCarthy Jr., the executive vice president and chief financial officer of Celunol, will become the chief financial officer of the combined company upon closing of the merger. As part of the merger, two members of Celunol’s board of directors, in addition to Mr. Riva, will be added to the Diversa board. Due to the complementary nature of the two companies, few staffing reductions are expected to occur as a result of the merger.

The global market demand for alternative fuels such as cellulosic ethanol is potentially massive. We believe the combined strengths of both companies will enable us to accelerate commercialization of cellulosic ethanol by leveraging our skills and proprietary knowledge into large-scale biofuels project developments. We have recently completed upgrades at our pilot-scale facility in Jennings, Louisiana, enabling it to be used to prove out our technologies across a range of biomass feedstocks. We will shortly commence construction of the nation's first demonstration-scale cellulosic ethanol facility at the same site.

—Carlos A. Riva