21 de junio de 2016 / 13:27 / en un año

UPDATE 3-Brazil education M&A battle heats up as Kroton raises Estácio bid

(Recasts to detail bids, comments from Ser Educacional, background throughout)

By Juliana Schincariol and Tatiana Bautzer

RIO DE JANEIRO/SAO PAULO, June 21 (Reuters) - The battle for control of Estácio Participações SA gained momentum on Tuesday as efforts by Brazil’s No. 2 for-profit college operator to remain independent failed to prevent rivals from sweetening their bids.

Kroton Educacional SA on Tuesday improved by almost one-third its unsolicited offer for control of Estácio, originally unveiled on June 2. Reuters had reported Kroton’s intention to raise its bid last week.

A source familiar with Kroton’s plans said it had already garnered support from about 40 percent of Estácio’s shareholders for the new proposal, which would be its definitive offer. Kroton is the world’s largest education company by market capitalization.

The other bidder, Ser Educacional SA, may sweeten the terms of a merger proposal sent to Estácio’s board on June 5, Chief Executive Jânyo Diniz told Reuters on Tuesday. He declined to elaborate on potential scenarios for a fresh bid.

The reaction from Kroton and Ser Educacional comes amid opposition from the Zaher family, Estácio’s No. 2 shareholder. The family’s patriarch, Chaim Zaher, was named Estácio’s chief executive officer last week to help steer the company through the takeover bids and cut costs.

The fight for Estácio, a company with about 588,000 students and annual revenue of 4.3 billion reais, is setting the stage for what may turn into the fiercest unsolicited takeover battle in one of Brazil’s fast-growing industries.

Analysts said Estácio’s bloated cost structure, compared to that of rivals, makes it an alluring takeover target: a buyer will have ample room to cut costs and sharpen business focus on geographical and segment expansion.

The Zahers want at least 1.5 Kroton shares for each of Estácio‘s, a source close to the family told Reuters on Tuesday. Kroton improved its offer to 1.25 share on Tuesday - compared with an original swap ratio of 0.977-to-1 on June 2.

Kroton’s latest proposal, which expires on June 30, values Estácio at one-fourth of its size, despite having almost half the number of students, the second source added.

Kroton and Estacio declined to comment.


The interest in Estácio underscores the strength of for-profit college operators even as a two-year recession pushes up student loan delinquencies and the government cuts loan subsidies.

Slowing revenue growth drove shares of Estácio, the byproduct of a series of acquisitions in recent years, down 21 percent in the year through June 1, the day before Kroton’s bid was announced.

By contrast, resilient profits bolstered the shares of Kroton and Ser Educacional, which gained 18 percent and 51 percent, respectively, in the same period.

Since the bids were unveiled, Estácio has risen 42 percent. Estácio gained 1.5 percent to 15.45 reais on Tuesday, while Kroton rallied 3.3 percent to 13.13 reais.

Ser Educacional gained 1.4 percent.

The Zahers, who own around 13 percent of Estácio, are taking on a tough stance negotiating with Kroton, which they see as a predatory buyer, said the second source.

Diniz said Ser Educacional’s merger plan, which entails a one-time cash payout to Estácio shareholders of 590 million reais and a share swap, could be improved “if Estácio holders agree to sit down with us.”

The Zahers’s vote may not be enough to block Kroton’s bid, analysts and investors said.

The first source, who spoke on condition of anonymity, said Oppenheimer Funds Inc and other funds with cross ownerships in both companies have pledged support for the improved bid. Oppenheimer owns 18 percent of Estácio and 5 percent of Kroton.

The deal faces potential antitrust roadblocks as politicians, consumers and competitors join forces. Last week, a branch of Brazil’s National Bar Association filed a complaint before antitrust watchdog Cade, saying a Kroton acquisition of Estácio would create a player with too much market power.

The Kroton-Estácio combination would have almost four times more students than Ser Educacional, according to industry data.

$1 = 3.3951 Brazilian reais Additional reporting by Silvio Cascione in Brasilia and Ana Mano and Brad Haynes in São Paulo; Editing by Jeffrey Benkoe and Andrew Hay

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