June 23, 2017 / 7:05 PM / a month ago

Kroton confident Brazil will approve Estacio deal, source says

3 Min Read

SAO PAULO (Reuters) - Kroton Educacional SA expects a key appointment at Brazil's antitrust watchdog Cade this week will help it win approval of its purchase of rival Estácio Participações SA, creating the world's No. 1 for-profit education company, a person directly involved in the transaction said on Friday.

According to the person, who asked for anonymity because of the sensitivity of the issue, Kroton was exploring Estacio's interest in requesting a delay to the Cade vote on the deal scheduled for June 28 because of opposition among Cade members.

But the appointment of Alexandre Barreto de Souza on Thursday as Cade president has changed the outlook, the person said. Prior skepticism among Kroton executives quickly morphed into optimism that the deal will be cleared with Barreto's arrival.

"Barreto's appointment to Cade reignited hopes that the transaction can be cleared, because of his expertise and technical qualities," said the person. Cade did not have a comment.

The situation reflects uncertainty about the deal, as Kroton rivals and consumer groups air concerns about the creation of a juggernaut with 10 times as many students as its closest rival. Investors in a Morgan Stanley & Co survey saw a 75 percent chance of the deal being rejected.

Shares of Estácio (ESTC3.SA) and Kroton led gains in Brazil's benchmark stock index on Friday, on news of a more sanguine outlook for the deal. Neither company commented on the current status of the deal.

Shares of Kroton (KROT3.SA) and Estácio (ESTC3.SA) slumped 7 percent and 14 percent, respectively, between Monday and Tuesday, after several Brazilian newspapers warned of growing opposition to the deal at the watchdog.

Reuters reported on June 5 that Cade had demanded asset sales larger than initially expected by Kroton as a condition to approve the deal. In February, a preliminary report by the watchdog's economic analysis division said the deal could hamper competition and lead to higher costs for consumers.

Writing and additional reporting by Guillermo Parra-Bernal; Editing by Cynthia Osterman

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