June 29, 2016 / 3:57 PM / 2 years ago

UPDATE 2-Brazil's Ser Educacional sweetens Estácio merger offer

(Adds Kroton maintaining offer, changes dateline)

By Juliana Schincariol

RIO DE JANEIRO, June 29 (Reuters) - Brazilian for-profit college operator Ser Educacional SA raised the cash portion of its merger proposal for larger competitor Estácio Participacoes SA on Wednesday, sweetening its bid in the face of an unsolicited rival offer.

The new proposal raises the cash payout to Estácio shareholders by 41 percent to 1 billion reais ($306 million) from 590 million reais, Ser said in a securities filing.

The proposed stakes in the merged company did not change from earlier offers, giving Estácio shareholders 68.7 percent and Ser Educacional shareholders 31.3 percent.

Ser’s improved bid for Estácio comes as another offer from rival Kroton Educacional SA expires.

A source with knowledge of the deal said Kroton would maintain its proposal even after Ser sweetened its offer. The same source said Estácio investors would ask for a shareholders meeting to discuss the future of the company.

If the shareholders do not accept Kroton’s offer, Kroton will begin a hostile takeover, the source said. Kroton declined to comment.

Coronation Fund Managers Ltd has endorsed Kroton’s bid, its co-managers said. The South African investment firm manages 11 percent of Estácio and 4 percent of Kroton for its clients.

Ser’s proposal is valid until the end of the day on July 8, the company said. It already hired two banks to provide financing, a person with knowledge of the deal said on Wednesday.

The source said the company’s leverage would be 1.2 times earnings before interest, taxes, depreciation and amortization.

Ser wants its current chief executive officer, Jânyo Diniz, to run the combined company, the source said, adding that executives were meeting with 32 investors through Thursday to present the offer.

Ser’s shares rose 1.2 percent, and Kroton’s were up 1.3 percent, while Estácio’s gained 4.9 percent in Sao Paulo trading.

$1 = 3.2695 Brazilian reais Additional reporting by Silvio Cascione; Writing by Caroline Stauffer; Editing by Lisa Von Ahn

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