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Biofuels firms Diversa, Celunol merge

The two companies expect the $154.7 million deal will help them step up production of next-generation ethanol.

Diversa and Celunol, two U.S.-based companies developing technologies to convert biomass to fuel, on Monday announced plans to merge in order to pursue next-generation ethanol production.

Under the deal, which is worth $154.7 million, Diversa will issue 15 million shares to acquire the equity of privately held Celunol and will provide $20 million in debt financing.

San Diego-based Diversa sells a line of specialized enzymes used in different applications including health and nutrition, industrial processes . Celunol, based in Cambridge, Mass., has developed technology for producing cellulosic ethanol.

In the U.S., most ethanol, which can be used as an alternative to gasoline, is made from corn. Cellulosic ethanol is produced from other sources, including agricultural waste, grasses or wood chips.

Cellulosic ethanol has the advantage of being . But cellulosic ethanol has not been produced on a large scale like corn.

Celunol has a pilot biorefinery in Louisiana. It expects to open another large-scale facility in the U.S. by the end of the year, using sugarcane stalks.

"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," Carlos Riva, CEO of Celunol, said in a statement.

The deal is expected to close in the second quarter of this year.