(Adds Kroton's comment)
SAO PAULO Feb 3 A Brazilian merger creating the
world's largest for-profit education company could hamper
competition and lead to higher costs for consumers, economists
at antitrust agency Cade said on Friday.
The agency's preliminary finding was contained in a report
by its economic studies department, which gauged the impact of
the proposed takeover of Estácio Participacoes SA by
rival Kroton Educacional SA to form an education
powerhouse with some 1.5 million students.
"The deal would remove an important player with a
consolidated brand and capacity to invest in advertising and
marketing, which has contributed to increased competition among
the companies by adopting a strategy of lower prices," Cade's
In a subsequent statement, technical staff in the office of
Cade's superintendent-general said the tie-up would spur
"monopolies in several markets," referring to the on-site and
distance-learning segments in which the companies operate.
Estácio declined to comment on the study.
Kroton said the companies will seek a negotiated solution
with Cade officials aiming to put to rest competition worries.
Scrutiny of the Kroton-Estácio merger comes as rivals and
consumer groups air concerns about creating a juggernaut with 10
times as many students as its closest rival in Brazil.
Kroton shares fell as much as 5 percent on Friday before
paring losses to close 2.8 percent lower.
"The report is critical of the merger," wrote J.P. Morgan
analysts Marcelo Santos and Andre Baggio. "We continue to expect
the deal to be approved, although there is a risk of additional
Cade's superintendent-general said Estácio's acquisition
eliminates Kroton's main rival from the market, raising the
likelihood of the combined companies "exercising market power"
and distancing them from competitors.
The findings of Cade's technical staff will be followed by a
more comprehensive analysis and a final ruling by the agency's
board by late July.
Reuters reported in November that Kroton was mulling the
sale of Estácio's distance-learning business to secure
regulatory approval for the takeover.
(Reporting by Ana Mano; Editing by Cynthia Osterman and Matthew