Tiger Global to invest up to $500 million in Brazil online retailer B2W

SAO PAULO Sun Jan 26, 2014 10:42am EST

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SAO PAULO (Reuters) - Tiger Global Management LLC, the hedge fund managed by industry mogul Charles Coleman, plans to spend up to 1.2 billion reais ($500 million) to buy a stake in Brazilian online retailer B2W Companhia Digital (BTOW3.SA), in a bet that e-commerce will keep booming in Latin America's largest economy.

Brazilian retailer Lojas Americanas SA (LAME4.SA), B2W's largest shareholder with a 62.2 percent stake, and two funds overseen by Tiger Global will jointly inject 2.38 billion reais into B2W, according to a late Friday securities filing. Tiger and Lojas agreed to subscribe to 95.2 million of B2W shares at 25 reais each, 61 percent above the stock's Friday closing price.

Lojas Americanas, Brazil's No. 1 discount retailer, agreed to purchase a minimum 1.021 billion reais of new shares in B2W while Tiger Global will purchase between 459.2 million reais and 1.2 billion reais worth of B2W stock, the filing said. At the end of the transaction, which requires regulatory approval, Lojas Americanas will remain B2W's top shareholder.

In recent years, Tiger Global has taken advantage of rapid growth in online commerce retail operations in Brazil and China, the world's two largest emerging market economies. Some of Tiger Global's investments in Brazil include online sports retail company Netshoes, Groupon Inc (GRPN.O) rival Peixe Urbano, and social game developer Vostu.

Coleman, 38, is one of the so-called "Tiger Cubs" - asset managers whose start was sponsored by hedge fund industry legend Julian Robertson. Coleman, a former technology analyst for Robertson's Tiger Management, has built Tiger Global into a firm with over $11 billion in assets under management, chiefly by his prowess in investing in internet companies before they sell shares to the public.

While Brazil's e-commerce market is expected to grow an average 18 percent annually by 2016, according to several consulting firms including E-bit and A.T. Kearney, some issues linger for online retailers. B2W, the largest Brazilian online retailer, has struggled over the past two years as a result of intense competition, eroding profitability and onerous upfront investment in technology to build up scale and improve customer service.

Shares of B2W are down 4.4 percent over the past 12 months.

With local interest rates at their highest level in about two years, household leverage peaking and persistently high inflation eating up disposable income, Brazil's leading online retailers are likely to post a net loss this year, according to Irma Sgarz, a Goldman Sachs Group retail analyst in Brazil.

Investors may react positively to the capital plan "since the subscription price was set at a large premium to B2W's current share price, avoiding dilution," said Marcel Moraes, a retail analyst with Deutsche Bank Securities. "On top of that, it should also reduce the concern over credit risk."

Minority shareholders should be granted preemptive rights. Those not participating could have their stakes diluted by about 38 percent, the filing noted.

(Editing by Rosalind Russell)

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