StoneCo Shares Decline Amid Low Linx Bids and Weakness in the Brazilian Market

On Friday, shares of Brazilian fintech company StoneCo (NASDAQ:STNE) fell after it was revealed that the company received multiple non-binding offers below the purchase price for its software unit Linx, which was acquired in 2020. This decline coincided with a broader weakness in the Brazilian stock market.

StoneCo's acquisition of Linx in 2020 is under review as the company evaluates offers for the unit. Although 20 potential bidders signed non-disclosure agreements to examine the sale details, only six submitted non-binding proposals. Interested parties include Brazilian software company Totvs SA and Canada’s Constellation Software, although Totvs has confirmed it has not yet made an offer.

So far, the proposals submitted have not met StoneCo's expectations, with some being more than 50% lower than the purchase price paid for Linx four years ago. However, sources indicate that higher offers exist and that it is unlikely StoneCo would sell the unit for significantly less than 5 billion reais.

As previously reported in September, StoneCo had engaged J.P. Morgan and Morgan Stanley to facilitate the sale of Linx. The company has since confirmed that it is exploring options for the software business but has not set a deadline for the sale.

The tech firm is reportedly in a solid financial position, which diminishes the urgency to sell Linx. This is further evidenced by StoneCo’s recent approval of a share buyback program valued at up to 2 billion reais.

The general decline in the Brazilian market ahead of the government's announcement on tax reform has also contributed to StoneCo's stock performance. The Brazilian government's new proposal aims to expand income tax exemptions for low-income citizens, increase taxes on high earners, and reduce public spending in the future.