(Adds Kroton's comment)
SAO PAULO, Feb 3 (Reuters) - A Brazilian merger creating the world's largest for-profit education company could hamper competition and lead to higher costs for consumers, economists at antitrust agency Cade said on Friday.
The agency's preliminary finding was contained in a report by its economic studies department, which gauged the impact of the proposed takeover of Estácio Participacoes SA by rival Kroton Educacional SA to form an education powerhouse with some 1.5 million students.
"The deal would remove an important player with a consolidated brand and capacity to invest in advertising and marketing, which has contributed to increased competition among the companies by adopting a strategy of lower prices," Cade's economists wrote.
In a subsequent statement, technical staff in the office of Cade's superintendent-general said the tie-up would spur "monopolies in several markets," referring to the on-site and distance-learning segments in which the companies operate.
Estácio declined to comment on the study.
Kroton said the companies will seek a negotiated solution with Cade officials aiming to put to rest competition worries.
Scrutiny of the Kroton-Estácio merger comes as rivals and consumer groups air concerns about creating a juggernaut with 10 times as many students as its closest rival in Brazil.
Kroton shares fell as much as 5 percent on Friday before paring losses to close 2.8 percent lower.
"The report is critical of the merger," wrote J.P. Morgan analysts Marcelo Santos and Andre Baggio. "We continue to expect the deal to be approved, although there is a risk of additional remedies."
Cade's superintendent-general said Estácio's acquisition eliminates Kroton's main rival from the market, raising the likelihood of the combined companies "exercising market power" and distancing them from competitors.
The findings of Cade's technical staff will be followed by a more comprehensive analysis and a final ruling by the agency's board by late July.
Reuters reported in November that Kroton was mulling the sale of Estácio's distance-learning business to secure regulatory approval for the takeover. (Reporting by Ana Mano; Editing by Cynthia Osterman and Matthew Lewis)