General Atlantic-backed drugstore Pague Menos buys rival Extrafarma - sources

By Carolina Mandl

SAO PAULO, May 18 (Reuters) - Brazilian drugstore chain Pague Menos PGMN3.SA acquired late on Monday rival Extrafarma from industrial holding Ultrapar UGPA3.SA for 600 million reais ($113.8 million), two sources familiar with the matter said.

The deal makes Pague Menos Brazil's second biggest drugstore retailer, only behind Raia Drogasil SA RADL3.SA . It is current the third-largest player.

Extrafarma will increase Pague Menos number of stores by more than one third, to a total 1,503 units, and reinforce its presence mainly in Brazil's northern and northeastern region, one of the sources said. Extrafarma has 402 stores.

Pague Menos, which is backed by U.S. private equity firm General Atlantic, will pay 300 million reais for Ultrapar when Brazil's antitrust watchdog greenlights the deal. The remaining part will be paid over the next two years, in two equal installments. Extrafarma's enterprise value was set at 700 million reais.

The deal is expected to create synergies of between 150 million reais and 250 million reais over the next 3 years to Pague Menos earnings before interest, taxes, depreciation and amortization (EBITDA), mostly from higher sales, one of the sources added.

This is the first acquisition by Pague Menos since it listed its shares on Brazil's stock exchange B3 in August. This year, its shares are up 19%, outperforming the local stock index.

Ultrapar decided to divest Extrafarma as part of a major reorganization of its portfolio to concentrate in the oil and gas sector. The group is in exclusive talks with Petrobras PETR4.SA to acquire the Regap refinery, located in the southern state of Rio Grande do Sul. nL1N2JU2YK

($1 = 5.2729 reais)
Reporting by Carolina Mandl

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