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UPDATE 3-Brazil software firm Totvs outbids StoneCo for rival Linx with $1.13 bln offer

(Adds statement from Linx, updates share price)

SAO PAULO, Aug 14 (Reuters) - Brazilian software company Totvs SA on Friday bid 6.1 billion reais ($1.13 billion) to acquire rival Linx SA, challenging a controversial takeover deal struck with payment processor StoneCo Ltd earlier this week.

The offer, at slightly less than a 1% premium to StoneCo’s, sent Linx shares rallying nearly 12%, suggesting that investors expect StoneCo, whose market cap is more than quadruple that of Totvs, to come back with a higher bid, said Ricardo Campos, chief investment officer at Reach Capital.

But the price surge could also reflect superior investor sentiment around the Totvs offer, which follows regulatory and shareholder criticism of StoneCo’s for offering superior terms to members of Linx’s management.

Linx said its independent board members would review the new offer.

Credit Suisse analysts called the Totvs offer “positive” for Linx, saying it would allow shareholders to benefit from potential synergies despite being at just a small premium to Stone’s. They warned, however, that antitrust issues loomed as a risk.

Totvs, whose shares were up about 2.8% in early afternoon trading, said the merger will combine its strength in manufacturing, logistics, distribution, services and agribusiness sectors with Linx’s strong presence in retail.

StoneCo’s shares closed at $48.21 on the Nasdaq, down 1.63%.

Totvs said it is offering one Totvs share plus 6.20 reais per Linx share, valuing each Linx share at 34.09 reais, and said it will remain as the listed company. The proposal is valid for 30 days.

If approved, Linx’s shareholders would hold a 24% stake in Totvs after the deal.

StoneCo’s proposal has been under scrutiny by Brazil’s securities regulator CVM and has been criticized by some Linx shareholders because Linx’s chief executive and other key board members would be paid more than 300 million reais in retention deals and non-compete agreements.

BIDDING WAR

In a letter sent to Linx’s board, Totvs Chairman Laércio Cosentino and CEO Dennis Herszkowicz said they had been in talks with Linx’s vice chairman and CEO to announce a deal on Aug. 11, when they were surprised by Linx’s announcement of a deal with StoneCo.

Totvs’ executives also say they will challenge a 605 million-reais breakup fee in the deal with StoneCo.

“(It) is inconsistent with the interests of Linx’s minority shareholders, who will not benefit from additional payments (to executives),” Totvs said in the letter.

The Credit Suisse analysts also cited the breakup fee as a risk to the Totvs offer. ($1 = 5.3825 reais) (Reporting by Carolina Mandl Additional reporting by Paula Laier Editing by Brad Haynes, Christian Plumb, Jonathan Oatis and David Gregorio)

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