SAO PAULO – After many speculations and negotiations, Cogna (COGN3) and Eleva Educação (which has Jorge Paulo Lemann as one of the partners) announced last Monday night an agreement classified by the two companies as the largest in the education sector basic of Brazil.
With it, Eleva will pay R $ 964 million to keep 51 schools today operated by Cogna. Cogna, on the other hand, through Vasta (its subsidiary with shares listed on Nasdaq), will buy Eleva’s education system for R $ 580 million.
The deal is still subject to approval by the Administrative Council for Economic Defense (Cade) and, if approved, Cogna can consolidate its position as the main supplier of educational systems in the country. Today, the company already controls the Anglo, pH, Par, Pitágoras, Ético, Maxi and Rede Cristã systems.
The agreement foresees that the brand Plataforma de Ensino Eleva will be licensed to the subsidiary of Cogna by 2023. Eleva schools will adopt Vasta’s education systems for ten years, with the exception of elite schools such as Escola Eleva, Os Batutinhas and Gurilândia.
Among the schools that Eleva will acquire, are Colégio pH, Leonardo da Vinci Educational Center, Lato Sensu School, Sigma, Anglo 21, Anglo Alphaville, CEI (Natal), Integrated School, Santi School, Colégio Visão, Embraer Schools, Colégio Pitágoras, Integrated Teaching Center (CIE), Colégio Maxi, NeoDNA, Escola Chave do Saber, Motivo, Colégio do Salvador. The Red Balloon language school will not be part of the transaction.
Of the total R $ 964 million of assets sold by Cogna to Eleva, R $ 625 million will be paid off over a five-year period, and the R $ 339 million difference will be converted into debentures convertible into Eleva shares, if the group Rio de Janeiro will hold its IPO, scheduled for this first semester. Therefore, the price per share will correspond to the value of Eleva’s role in the offer.
With the consolidation of the IPO, Cogna will become a shareholder of Eleva, directly or indirectly. However, Cogna and its subsidiaries will not be able to compose any block of controlling interest in Eleva and will have voting restrictions in corporate resolutions and to increase their ownership interest in the company’s capital stock, for a specified period.
“Cogna and Eleva finally concluded the purchase and sale agreement, which guarantees the exchange of the educational system of the Rio group, for the 51 schools of the sector leader, which should generate great synergies for both. Still, it is worth saying that Eleva can carry out its initial public offering of shares over the next few months, which makes the difference in the transaction converted into debentures convertible into shares ”, reinforces Luis Sales, an analyst at Guide Investimentos.
XP Investimentos, in turn, highlights that the impact on deleveraging for Cogna is limited (and not immediate), considering that the debt has a great chance of being converted into shares with limited liquidity, and was lower than market expectations. (including those of analysts), which were close to R $ 1 billion.
“The terms of the transaction were worse than we estimated and, although expected, there is still negative news about the pressure of results in the short and medium term of the company. Therefore, we maintain our neutral recommendation with a target price of R $ 5.10 per share ”, points out XP.
Reinforcing its previous vision, Bradesco BBI points out that the agreement is positive for Cogna, since its learning systems business is the area that analysts see most as having the greatest potential and highlight that the transaction does not have such a significant impact on leverage of the company, one of the points of concern in the market, highlighting that the terms of the acquisition were attractive, especially considering the possible synergies to be extracted from the business.
“We see this market as the type where ‘the leader takes the most’, in which scale is vital to dilute costs and gather market information, so that the inclusion of Eleva’s assets would be a strategic advantage. The inclusion of Eleva’s assets would also dilute the relevance of the PAR solution [sistemas de ensino baseado em livros didáticos] among Cogna’s student base, which we see as having less potential than the rest of the operations of its subsidiary Vasta ”point out.
Despite seeing the news as positive, BBI analysts maintained the neutral recommendation for Cogna, despite the target price of R $ 6. See more about the analysis for Cogna’s shares by clicking here.
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