June 28, 2016 / 9:07 PM / 2 years ago

UPDATE 1-Brazil's Zaher, two funds mull Estácio bid, source says

(Adds details of possible Zaher bid, share performance, background on Estacio bidding battle)

By Tatiana Bautzer and Guillermo Parra-Bernal

SAO PAULO, June 28 (Reuters) - The Zaher family, the No. 2 shareholder in Estácio Participações SA, has secured bank loans and teamed up with an Asian sovereign wealth fund for a plan to win control of Brazil’s second-largest college operator and thwart two rival bids, a source with direct knowledge of the matter said.

According to the source, who asked for anonymity since the plan is subject to changes, Banco Bradesco SA and Banco Santander Brasil SA have offered the family’s investment vehicle TCA Investimentos Ltda the necessary financing for the bid.

Apart from the undisclosed Asian fund, another Brazil-based investor agreed to join the Zahers on the bid, the source said on Tuesday. The TCA-led group will only make the bid public should separate offers from rivals Kroton Educacional SA and Ser Educacional SA be too low, the source added.

The Zahers, who own a 14 percent stake in Estácio through TCA and other investment vehicles, declined to comment. Bradesco and Santander Brasil did not immediately comment.

The battle for Estácio risks becoming fiercer, with Kroton considering a hostile takeover if necessary. It also underscores the resilience of Brazil’s education industry as the country struggles with a recession not seen in eight decades and a sharp reduction in government-funded student loans.

Estácio had announced Monday that the Zahers, through TCA, would be willing to present an all-cash bid that would give it control of up to 75 percent of the company. This month, Estácio named Chaim Zaher, the family’s patriarch, as chief executive officer.

Shares of Estácio fell 1.8 percent to 16 reais, paring back year-to-date gains to 18 percent.


According to a second source, who is also directly involved in the transaction, Estácio’s board would tend to accept a sweeter proposal from Kroton, the world’s largest education company by market value.

Kroton’s current offer values each share of Estácio at the equivalent of 1.25 share of Kroton. The source said the chance of winning the board’s blessing would rise sharply should Kroton improve the offer somewhere between 1.4 share and 1.5 share.

The Zahers would also consider accepting a similar offer, both sources said.

Reuters reported on Monday that the current offer for Estácio is definitive, adding that the company has already secured the backing of more than half of Estácio’s shareholders - some of which are also holders of stakes in Kroton.

Several board members of Estácio have raised the issue of a potential conflict of interest among some of those cross shareholders.

According to the first source, Cape Town-based investment firm Coronation Fund Managers, has sent a letter to Estácio’s board asking to accept terms of the Kroton deal. There was no immediate response to an email sent to Coronation seeking comment.

If the offer turned hostile, any shareholder owning more than a 5 percent stake in Estácio may ask for a shareholder assembly to put all available bids for the company to vote.

Ser Educacional, the other bidder, is also taking steps to escalate the battle for Estácio.

According to the first source, Ser Educacional plans to raise the cash portion of its cash-and-stock bid in a new proposal that could be delivered to Estácio’s board as early as Wednesday. (Additional reporting by Juliana Schincariol in Rio de Janeiro; Editing by Andrew Hay)

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