ISS Tells Apollo Education Shareholders to Reject Takeover

  • Standalone strategy `more compelling,' voting adviser says
  • Investors scheduled to vote on deal at meeting on April 28

Apollo Education Group Inc. shareholders should reject a $1.1 billion takeover bid by a group of private-equity firms because the deal is based on an “extraordinarily low valuation,” a voting adviser said.

Institutional Shareholder Services Inc. said the $9.50 offer should be rebuffed because the upside for Apollo Education as a standalone company is “more compelling than its risks,” according to a report published last week. Investors are scheduled to vote on April 28.

The takeover by investors led by Apollo Global Management has already been approved by the owner of the University of Phoenix and was a 44 percent premium to the share price before talks were first revealed. Another shareholder adviser, Glass Lewis, has recommended that investors back the deal, citing an “extremely challenging operating and regulatory environment.”

Apollo Education has been under pressure after more than $2.9 billion was erased from its market value in 2015 amid an industry scandal that uncovered examples of high tuition and paltry results among for-profit schools. Apollo Education cut its earnings forecast in June and is also being scrutinized by U.S. regulators for possible unfair advertising and marketing.

‘Better Deal’

ISS said the board’s focus on the challenging environment and the “urgency” with which a deal has been pursued underscored its concern that the private-equity firms may be getting the better deal. It also said the speed of the transaction may have led the board “to give short shrift to other alternatives.”

Apollo Education’s two largest shareholders -- London-based Schroders Plc and Los Angeles based First Pacific Advisors LLC -- have both indicated that they would likely reject the offer on valuation grounds, while the company has insisted that the offer represents a “robust premium” and is in the best interest of shareholders.

Apollo Education Chief Executive Officer Greg Cappelli rejected ISS’s report on Monday and said the board had run a “robust process” over the past 12 months and looked at strategic alternatives before accepting the takeover offer.

The stock has climbed about 9 percent since the deal was announced Feb. 8 and was down 0.9 percent to $7.54 at 10:45 a.m. in New York. That compares with a high of $97.93 in 2004.

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