SAO PAULO (Reuters) - Kroton Educacional SA (KROT3.SA), Brazil’s largest provider of undergraduate distance learning, plans to acquire rival Anhanguera Educacional Participacoes SA AEDU3.SA in an all-stock deal, the latest in a wave of buyouts in the country’s red-hot education sector.
According to a securities filing on Monday, Kroton will offer 1.364 common shares for each share of Anhanguera and will finance the acquisition by issuing 198,763,627 new shares.
Kroton shares closed Friday’s session at 25.14 reais, making the deal, which is subject to regulatory approval, worth about 5 billion reais ($2.48 billion).
Earnings before interest, taxes, depreciation and amortization at the combined firm, a gauge of operating profit known as EBITDA, will reach nearly 1 billion reais in 2013, compared with 700 million reais in 2012, according to an investor presentation delivered by Kroton and Anhanguera executives on Monday.
The executives said the two companies had relatively little geographic overlap and that the combination would provide opportunities to boost revenue growth and EBITDA margins. Distance learning involves delivering education and instruction to students who are not physically present in a traditional setting such as a classroom.
Kroton shares gained 7.4 percent to 27 reais after the announcement, while shares of Anhanguera were up 6.88 percent to 36.50 reais.
Financing the acquisition with equity may be a surprise to some investors. Earlier this month in an interview with Reuters, Kroton Chief Executive Rodrigo Galindo stressed the company’s desire to fund takeovers with debt.
In a statement, Anhanguera confirmed the plans. Representatives of Kroton were not immediately available to comment.
The wave of consolidation in Brazil’s booming education industry has been bolstered by strong demand for better-trained workers, especially those with language skills.
In February, Abril Educação ABRE11.SA agreed to pay 877 million reais ($435.7 million) for English school Wise Up, its third language-related deal since September 2011. Last year, private-equity funds Actis LLP and H.I.G. Capital LLC purchased two language schools in Brazil.
Companies in the sector have won over investors as President Dilma Rousseff’s vow to work closely with private companies to boost education coverage and quality has been seen as a boon for profits.
Kroton shares are up 17.5 percent this year, while Anhanguera shares have risen 5.6 percent, compared with a 12 percent drop in the benchmark Bovespa stock index .BVSP.
Reporting by Asher Levine and Vivian Pereira; Editing by Lisa Von Ahn, Grant McCool and John Wallace