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Brazil regulators say Kroton-Estácio tie-up may hurt competition
February 3, 2017 / 7:48 PM / in a year

Brazil regulators say Kroton-Estácio tie-up may hurt competition

SAO PAULO, Feb 3 (Reuters) - A Brazilian merger creating the world’s largest for-profit education company could hamper competition and lead to higher costs for consumers, 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 economists wrote.

Their preliminary finding will be followed by a more comprehensive analysis by Cade and a final ruling by the agency’s board by late July.

Scrutiny of the Kroton-Estácio tie-up 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 in Friday trading before paring losses to 2 percent at 13.43 reais in the afternoon.

“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 remedies.”

Estácio declined to comment on the study. Kroton’s press representatives were not immediately available for comment.

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 Tom Brown)

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