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Shares in Brazil’s Linx, StoneCo fall after deal announced

Aug 12 – Shares in Brazilian software firm Linx SA and card processor StoneCo both fell on Wednesday, erasing part of gains a day after StoneCo said it would buy Linx in a $1.12 billion deal.

Shares in Linx were down nearly 6%, while StoneCo shares fell more than 4%. In the wake of Tuesday’s announcements, shares in both companies had surged, with Linx up 31.5%, while U.S.-listed StoneCo’s shares gained 11%.

Analysts praised the deal in notes to clients, but said Linx’s shares surpassed on Tuesday the proposed price of 33.98 reais for the deal.

“We see such premium as deserved as Linx is not expected to face any disruption in its business model in the foreseeable future while Stone will likely have to handle a deep transformation in the payments industry in the coming years,” analysts at Credit Suisse wrote, adding the deal might face some challenges to gain shareholders’ approval.

Analysts at BTG Pactual also pointed out that StoneCo’s offer could trigger a bidding war for Linx, with the card processor’s competitors delivered rival offers.

They see Itau Unibanco Holding SA’s Rede as a player to worry about, as 7.3% of its processed payments come currently from Linx’s clients.

In a conference call with analysts, Linx’s CEO Alberto Menache said the company plans to keep its contracts with Rede.

StoneCo said on Tuesday it is interested in Linx’s 70,000 retail clients, who now process payments with gross transaction volume of 300 billion reais ($55.74 billion) through other providers. The card processor also plans to offer them banking services and credit.

The move comes as card processors face fierce competition in Brazil, with prices under pressure. (Reporting by Carolina Mandl and Aluisio Alves, in Sao Paulo, Additional Editing by Gabriel Stargardter in Hyeres, France, Will Dunham and David Gregorio)

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