June 15, 2016 / 5:18 PM / in 2 years

Lawyer group urges Brazil to halt potential Kroton rival takeover

SAO PAULO, June 15 (Reuters) - A branch of Brazil’s National Bar Association filed on Wednesday a complaint against for-profit education firm Kroton Educacional SA’s proposed takeover of smaller rival Estácio Participações SA, saying the merged company would have too much market share.

In the complaint to antitrust watchdog Cade, lawyers at the Rio de Janeiro-based branch of OAB alleged that the combined company would control over 30 percent of students in 75 Brazilian cities and almost half of the nation’s fast-growing distance-learning market.

According to the lawyers, the combination would breach competition laws and hamper service quality, the complaint said. Kroton became Brazil’s largest college operator after embarking on almost two dozen acquisitions since 2007 that faced moderate scrutiny.

Kroton and Estácio, Brazil’s No. 2 education firm, declined to provide immediate comment.

“A monopoly inhibits the benign conditions stimulating the subsequent improvements in service stemming from a healthy competitive environment,” Fabio Nogueira, an OAB senior member in Rio de Janeiro, was quoted in the complaint as saying.

The complaint underscores the potential roadblocks facing Kroton’s bid for Estácio as politicians, consumers and competitors join forces to thwart the deal. With Estácio , Kroton would have almost four times more students than Ser Educacional SA, currently Brazil’s third-largest college operator.

Estácio shareholders are evaluating another offer, which Ser Educacional unveiled less than a week than Kroton’s own in early June. No formal decision has been made.

Kroton’s preliminary all-stock deal is valued at 3.37 billion reais ($976 million). Ser Educacional’s offer has a cash component of 590 million reais in a one-time dividend and a share swap.

Shares in Kroton fell 2.1 percent to 12.81 reais, while those of Estácio shed 0.7 percent to 14.81 reais. Ser Educacional dropped 1.5 percent to 12.62 reais early Wednesday afternoon.

$1 = 3.4546 Brazilian reais Reporting by Ana Mano; Editing by Guillermo Parra-Bernal and Richard Chang

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