September 12, 2017 / 3:44 PM / 10 months ago

UPDATE 1-Magazine Luiza slumps on plans for Brazil share offering

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By Guillermo Parra-Bernal

SAO PAULO, Sept 12 (Reuters) - Shares in Magazine Luiza SA, the Brazilian appliance retailer whose market value has quintupled this year, slumped the most in four months on Tuesday, after disclosing plans for a bigger-than-expected offering of 24 million new and existing shares.

The stock shed 15.7 percent to 66 reais, the lowest since the end of last month, in late morning trading in São Paulo. Magazine Luiza recently approved a 1-to-8 share split, facilitating a long planned offering and giving smaller investors access to a stock that has rallied 492 percent this year.

Earlier in the day, Magazine Luiza said in a regulatory filing the deal should help it cut debt and fund acquisitions amid an ongoing shift towards e-commerce marketplace activities. The company will sell 17.6 million new shares, with five investors including the controlling Trajano family selling 6.4 million existing shares.

Some investors said the offering opened an opportunity to cash in part of their year-to-date gains, driving prices down ahead of the transaction. One of them expects solid demand for the issue in the heels of growing revenue, declining borrowing costs and a gradual economic recovery in Brazil.

"It's an attractive case that I have no doubt will lure many types of buyers," said one of the investors, who asked to remain anonymous to discuss investment strategies in public.

At current prices, the restricted-efforts deal could help Magazine Luiza and the shareholders fetch 1.88 billion reais ($606 million) - compared with expectations of about 1 billion reais, when speculation about such a plan began to emerge in June, the investors said.

Proceeds will be used to acquire technology firms specializing in retailing and marketplace platform services, and open new stores and cut debt. This year's rally has reflected solid revenue trends stemming from Chairwoman Luiza Trajano's strategy to transform current stores into small-scale distribution centers.

Magazine Luiza hired the investment-banking units of Bank of America Corp, Grupo BTG Pactual, JPMorgan Chase & Co, Itaú Unibanco Holding SA, Credit Suisse Group AG, Banco Bradesco SA, Banco Santander Brasil SA and Banco do Brasil to work on the plan.

Management will meet investors in Brazil and abroad over the next couple of weeks, with pricing slated for Sept. 27.

The transaction will be in the form of a restricted-efforts offering, which differs from standard equity offerings in that a company does not have to request registration of the plan with securities industry watchdog CVM. Only qualified investors can participate in such offerings, and the deals cannot be marketed through road shows or the media.

$1 = 3.1026 reais Additional reporting by Gabriela Mello in São Paulo; editing by Diane Craft

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