Anhanguera Falls With Kroton as Regulator May Limit Merger

Anhanguera Educacional Participacoes SA and Kroton Educacional SA sank after Brazil’s antitrust regulator indicated that the education companies may have to sell some schools before their merger is approved.

Anhanguera declined 2.1 percent to 12.68 reais at the close of trading in Sao Paulo, the lowest level since Feb. 27. The shares extended their decline this year to 15 percent. Kroton lost 0.5 percent to 44.10 reais, snapping a three-day winning streak. The Ibovespa slipped 0.9 percent.

A preliminary assessment from Brazil’s antitrust regulator, known as Cade, showed that the companies may have to sell some of their long-distance schools to ensure that the industry remains competitive, Anhanguera and Kroton said in a joint statement yesterday. Kroton offered in April 2013 to buy Anhanguera in an all-stock deal valued at 5 billion reais ($2.1 billion) that would form the world’s biggest education company by market value.

The deal between the two companies is “impractical” if no restrictions are imposed, according to a statement from Cade attorney’s office last week.

“These long-distance units are very important for both companies, as a big investment was needed to set them up and make them as profitable as they are now,” Lenon Borges, an analyst at at brokerage Ativa Corretora, said by phone from Rio de Janeiro. “To get rid of them is one of the worst things Cade could ask to approve the deal.”

Under the ratio of the stock swap proposal, Anhanguera’s shares would be worth 20.06 reais if the deal closed at current prices, data compiled by Bloomberg show. The companies said in a Feb. 28 statement that they won’t change the terms of the deal even as Anhanguera’s shares drop.

The findings of Cade attorneys’ office will be presented to the regulator’s board, which will have final say on the merger. Board member Ana Frazao said late last year that a decision may be announced by June.

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