JPMorgan’s Gavea in Talks to Buy $1.3 Billion Fleury

Fleury SA (FLRY3), a Brazilian provider of medical services, said its controlling shareholder is in exclusive talks to sell its stake to JPMorgan Chase & Co. (JPM)’s Gavea Investimentos Ltda.

Core Participacoes SA, which controls Sao Paulo-based Fleury, initiated the negotiations with investment firm Gavea to sell its entire direct and indirect holdings, according to a regulatory filing today. Carlyle Group LP and KKR & Co. were previously involved in talks to acquire Fleury, three people familiar with the matter said in January.

Brazil’s health-care sector is luring investors as rising incomes and unemployment near record lows allow more people to leave the public health system, which serves about 75 percent of the population, for the care of private providers. UnitedHealth Group Inc. agreed in October 2012 to buy insurer and hospital chain Amil Participacoes SA for about $4.9 billion, while Diagnosticos da America SA is rallying after it said in December that its biggest individual investors offered to acquire all its outstanding shares.

“The industry has good growth potential, which could explain the deals we’ve seen,” Rodolfo Amstalden, an analyst at equity advisory firm Empiricus Research, said by phone from Sao Paulo. “The penetration of medical services in Brazil is still relatively low.”

Fleury Rival

Fleury’s press office declined to comment. Gavea didn’t immediately comment when contacted by e-mail and telephone by Bloomberg News.

Gavea, which is JPMorgan’s private-equity and hedge-fund unit in Brazil, already owns a 30 percent stake in Instituto Hermes Pardini Ltda., which competes with Fleury in providing diagnostic services to the medical profession.

The value of the deal may top Fleury’s 3 billion-real ($1.3 billion) market value under Brazilian securities rules that require the acquiring company to buy out minority investors when control changes hands. The Novo Mercado, the section of the Brazilian stock exchange where Fleury is listed, gives smaller shareholders a so-called tag-along right in which they are entitled to 100 percent of the price paid to controlling stakeholders.

Core owns about three-quarters of the publicly traded stock, according to its website.

Fleury fell 1 percent to 19.11 reais at the close of trading in Sao Paulo. The stock has rallied 13 percent since Nov. 8 amid speculation a transaction could take place. The company said Nov. 14 that Core had hired JPMorgan to assess strategic alternatives for its stake. Fleury’s gain compares with a 12 percent drop for the benchmark Ibovespa index, and a 31 percent advance for Diagnosticos da America, known as Dasa.

Fleury missed analysts’ adjusted earnings estimates for the 12 quarters through September as it sought to cut costs amid increasing competition from laboratories and hospitals. The company is set to release its fourth-quarter figures tomorrow.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editors responsible for this story: Adriana Arai at aarai1@bloomberg.net Jessica Brice, Brendan Walsh

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