With PayPal's Support, MercadoLibre to Raise $1.85 Billion 

(Bloomberg) -- Latin American e-commerce retailer MercadoLibre Inc. is expected to price an equity sale at $480 per share, according to people familiar with the matter.

The pricing guidance comes before the company is expected to officially price the sale overnight Tuesday. The indicated offering price, which represents a 0.72 percent discount to Tuesday’s closing price, is according to two people who asked not to be named because the results aren’t yet public. The company said Monday evening it planned to raise $1.85 billion through a public share offering and direct investments from companies including PayPal Holdings Inc.

The public offering is set to be one of the largest equity sales by an Argentine company in the past 10 years. PayPal has agreed to invest $750 million. An affiliate of Dragoneer Investment Group will purchase $100 million of perpetual convertible preferred stock, MercadoLibre said in a statement late Monday. The sale may close as early as Tuesday evening or Wednesday morning, the company’s chief marketing officer Sean Summers said in an interview.

MercadoLibre is boosting investment in logistics as its e-commerce business faces increasing pressure in Brazil, its largest market, with Amazon.com Inc. expanding its presence in the region. It will also use the funds to invest in fintech and payments solutions, at a time when a ramp up in growth beyond retailing to payments and financial technology had led analysts to wonder if that might eventually dwarf its retail operations.

“As one of our investors from Dragoneer said, there’s a sense that Latin America is at a tipping point in terms of e-commerce growth,” Summers said. “Our priorities are clear and we’re strengthening our bet across them.”

MercadoLibre will focus the funds on its largest markets, Brazil, Mexico and Argentina, he said. The funds raised in the sale will be split almost evenly among e-commerce and fintech and should be enough to meet the company’s strategic plans. Summers declined to comment on expected capital expenditures for 2019, but noted that the company totaled $102 million in capital expenditures last year.

With PayPal's Support, MercadoLibre to Raise $1.85 Billion 

PayPal won’t take an active role in the day-to-day operations of the company or participate on its board, but the company’s teams will begin meeting to work together on best practices in financial technology, Summers said. MercadoLibre has been increasing the use of online payments both through QR codes and handheld devices, while also boosting opportunities for retail users to invest in mutual funds through its wallet app.

“This deal opens the door to communication channels between our operations teams,” Summers said. “We’re going to identify collaboration areas, to understand how PayPal’s global know-how best complements MercadoLibre’s regional know-how.”

‘Closing the Gap’

The combination of the funds and the investors’ expertise should help the e-commerce giant, now Argentina’s largest company with a market value of almost $22 billion, dwarfing its regional competitors, according to Bradesco BBI. Brazilian competitor B2W Cia Digital dropped 5.1 percent as Bradesco warned that its digital initiatives might be “left behind” by MercadoLibre.

“The funds from this offering give MercadoLibre a strong chance of ‘breaking-out’ in the payments space, particularly in Brazil,” Bradesco analysts led by Richard Cathcart wrote in a note. In the retail business, “MercadoLibre is now likely to be able to close the gap in logistics with its e-commerce peers more quickly than we had previously anticipated,” they wrote.

With PayPal's Support, MercadoLibre to Raise $1.85 Billion 

Wall Street analysts also praised PayPal’s bet on Latin America, where it has just 4 percent of active accounts, noting the integration opportunities ahead.

While some analysts have wondered if the company might look to spin off its payments unit, Summers said that the option is not currently being considered. “We believe that, together, both businesses have a lot of growth potential,” he said.

Goldman Sachs Group Inc. is a financial adviser on the PayPal and Dragoneer investments. JPMorgan Chase & Co. and Morgan Stanley joined Goldman as bookrunners on the public equity offering. Shares of MercadoLibre gained 0.7 percent.

The transaction is the second capital raise in a year, after it raised $800 million by selling convertible bonds last August. The company has benefited from its region-wide presence to distance itself from other Argentine companies’ difficulties raising funds after a currency crisis last year prompted the country to seek a record credit line from the International Monetary Fund.

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