Brazil Education Giants Make Competing Offers for Estacio

  • Ser proposes merger two days after Kroton announces interest
  • Estacio says it created a committee to evaluate both offers

Two of Brazil’s biggest education companies are facing off in a quest to merge with Estacio Participacoes SA, the country’s second-largest for-profit firm in the sector.

Ser Educacional SA sent a non-binding proposal to combine with Estacio, a deal that would create the largest education group focused on in-person private higher-education in Brazil, the company said Sunday in a corporate filing.

The offer on Saturday came two days after the country’s biggest education operator, Kroton Educacional SA, announced its interest in acquiring Estacio for 3.48 billion reais ($968 million) in stock. Estacio and Kroton shares surged after the announcement Thursday. Brazilian education companies are looking at consolidation as government cutbacks threaten a key source of financing for students, which has weighed on stock prices.

Estacio shares rose as much as 7.3 percent Monday and were up 4.9 percent at 14.57 reais at 1:53 p.m. in Sao Paulo. Ser Educacional shares rose 0.6 percent to 12.36 reais, after jumping as much as 14 percent earlier. Kroton dropped 5.1 percent to 12.32 reais.

Ser is valued at about 1.5 billion reais. While the company didn’t provide full details of its proposal including a per-share price, investor relations officer Rodrigo Alves said on a conference call Monday that its plan represents a 9 percent premium over Estacio’s 11.08 reais closing price on June 1. That would include extra dividend payments of 590 million, or 1.92 real per share, to Estacio shareholders. Estacio holders would own 68.7 percent of the combined company, with Ser shareholders owning the rest, Ser said in the filing.

Kroton Plan

In Kroton’s proposal, investors would get 0.977 share of the company for each share they hold in Estacio, according to a filing. That bid wouldn’t represent a premium for Estacio, which was valued at 3.5 billion reais at the close of trading on June 1. Kroton had a market value of 18.2 billion reais at that time.

Estacio, in a filing Sunday, said it created a committee that will evaluate both proposals. The company hired Banco BTG Pactual as a financial adviser and law firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados as a legal adviser.

A Ser-Estacio combination would have 739,000 students and annual revenue of 4 billion reais, Alves said on the conference call with investors. It would bring an expected 1 billion reais in cost savings and leave the new company with room for acquisitions, he said.

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