Kroton Poised to Win Estacio Battle With $1.66 Billion Offer

  • Education giant offers 1.281-to-1 exchange ratio in stock deal
  • Ser Educacional, Zaher family had been contending for Estacio

Estacio Participacoes SA said it accepted a 5.36 billion-real ($1.66 billion) all-stock takeover proposal from Kroton Educacional SA, putting the for-profit education giant in position to win a monthlong bidding war.

Estacio investors will receive 1.281 share of Kroton for each share they hold, according to a filing Friday. Shareholders of Estacio will also get a special dividend of 55 centavos a share. The offer price represents a 57 percent premium over Estacio’s closing price June 1, the day Kroton announced it would pursue a takeover. 

Estacio’s board will meet on July 8 to discuss the additional terms of the Kroton bid and schedule a shareholders meeting. “The final approval will certainly depend on the success of the discussions,” according to Friday’s filing.

With Estacio’s acceptance of the bid, Kroton is poised to claim victory over Ser Educacional SA in the battle to consolidate the education industry. The companies are trying to get bigger to help contend with Brazil’s deepest recession in at least a century. Estacio is also an attractive target because it has a heavy concentration in the state of Rio de Janeiro, Brazil’s second biggest market.

Ser, Brazil’s sixth-largest for-profit education provider, believes Estacio’s agreement with Kroton doesn’t rule out a competing bid, said a person with direct knowledge of the situation. Ser is still assessing the situation to decide on next steps, said the person, who asked not to be identified because discussions are private.

Kroton and Estacio are the two largest companies in the industry. With about 1.6 million students enrolled in on-site and online higher education courses, the combined company would have 23 percent of the market and face scrutiny from Brazil’s antitrust regulator Cade, according to consultant Hoper Educacao. That dominance would be even greater in the online-learning segment, Hoper said, with the two groups retaining almost 50 percent of the total market.

Even if the company divests its distance-learning business, regulatory risks remain because of its “sheer size,” JPMorgan Chase & Co. analysts Marcelo Santos and Andre Baggio wrote in a note Monday to clients. “We do not rule out divergent opinions on Cade’s board, which could result in substantial volatility in the shares until the process is finalized,” they wrote.

The Zaher family, which owns 14.1 percent of Estacio, also joined the bidding war this week, expressing interest in increasing its stake to avoid a combination with either Kroton or Ser. The Zahers haven’t determined an offer price and would seek no more than 75 percent of the company so it would remain publicly traded, Estacio said in a filing on Monday. The family includes Estacio CEO Chaim Zaher, a former board member who replaced Rogerio Melzi in the top post after talks began with Kroton and Ser this month.

Having final terms of a Kroton-Estacio deal set before it gets regulatory approval might appease Estacio shareholders, who don’t want to end up in the same situation as when Kroton completed its purchase of Anhanguera Educacional Participacoes SA in 2014.

It took the Brazilian regulator Cade about a year to approve that all-stock deal. In the meantime, Kroton’s market value had climbed and the company renegotiated the terms of its offer to 0.3097 of a common share for every Anhanguera share, down from an original ratio of 0.4548. The new offer valued Anhanguera at about 7.5 billion reais, compared with about 10.2 billion reais under the old terms.

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