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UPDATE 1-Brazil's Estácio hires ICTS to conduct probe of email leaks
March 21, 2017 / 7:41 PM / 6 months ago

UPDATE 1-Brazil's Estácio hires ICTS to conduct probe of email leaks

(Adds company confirmation, hiring of law firm, share performance)

By Ana Mano

SAO PAULO, March 21 (Reuters) - Brazil’s Estácio Participações SA, the target of a takeover attempt that would create the world’s No. 1 for-profit education firm, has launched a probe into leaked emails about the deal that added to rising tensions with bidder Kroton Educacional SA .

The friction between the two companies over the emails reported by a local newspaper has added to the challenges facing the tie-up, which include intense regulatory scrutiny and the impact of a recession that triggered a surge in student defaults.

Estácio said Tuesday that risk consultants ICTS Global Serviços were hired on Feb. 18 to investigate the email security breach. The company learned around that date that emails between Chief Executive Officer Pedro Thompson and a lawyer advising about antitrust issues related to Kroton’s takeover proposal had been leaked.

Reuters reported the hiring of ICTS earlier, citing a person briefed on the matter. In a statement, Estácio reaffirmed a plan to investigate the breaches, adding that the emails between Thompson and the lawyer at São Paulo-based law firm Demarest Advogados “were taken out of context.”

Valor Econômico newspaper on Friday said that in the emails Thompson asked the lawyer about the possibility of telling antitrust watchdog Cade that Kroton was meddling in Estácio’s management before the deal was approved, which would be illegal. Kroton got hold of the emails from an anonymous source and drew the conclusion that Estacio was undermining the deal, Valor said.

By hiring ICTS, Estácio is signaling that it wants to find out what led to the disclosure of internal communications and show full commitment to completing a 27 billion-real ($8.8 billion) asset combination with Kroton, people with direct knowledge of the situation told Reuters.

Law firm Mattos Filho Advogados was brought in to investigate Thompson’s conduct as well as the breach, another person said. Risk consultancy Control Risks has also been advising Estácio on the matter, the first person said.

The people asked for anonymity due to the sensitivity of the issue. Estácio, Kroton and law firms Demarest and Mattos Filho declined to comment.

Competitors and consumer advocacy groups have been critical of the transaction, which if approved will create an entity 10 times larger than the industry’s No. 2 player.

Shares of Kroton fell for the second day in three on Tuesday, shedding 2.8 percent to 13.26 reais, while Estácio dipped 3.5 percent to 15.07 reais.

CLAIMS OF MEDDLING

Two of the people told Reuters that Thompson wanted to learn about alternative scenarios if Cade blocked the combination. Estácio has repeatedly denied that Thompson sought to boycott the deal and removed him from a group discussing terms of the combination.

Kroton has also disputed claims of interference in Estácio’s management ahead of regulatory approval of the takeover, a practice known as “gun jumping,” after Valor revealed the email conversation last week.

However, claims that Kroton could be meddling with Estácio’s management are not new to antitrust watchdog Cade.

In September, the watchdog asked both companies about information it received that Kroton was involved in the firing of 180 Estácio executives after the companies submitted the takeover plan for regulatory approval in August.

In response, Estacio told Cade that 73 executives had been fired to reduce costs, not at Kroton’s direction.

Cade has until the end of July to conduct its review. In February, a Cade unit made a non-binding recommendation that the takeover be blocked. A ruling by the watchdog’s five-strong board is pending.

Cade declined to comment.

$1 = 3.0715 reais Reporting by Ana Mano; Additional reporting by Tatiana Bautzer and Gabriela Mello in São Paulo; Editing by Guillermo Parra-Bernal and Cynthia Osterman

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