Apollo Education to Be Taken Private in $1.1 Billion Deal

  • Private equity group pays 44 percent premium for company
  • For-profit education sector is under regulatory pressure

Apollo Global Management and other investors agreed to buy Apollo Education Group Inc., owner of the University of Phoenix, as for-profit schools struggle to win back the trust of students and regulators after an industry scandal uncovered examples of high tuition and paltry results.

The buyers, which also include funds affiliated with Chicago-based Vistria Group and Jahm Najafi’s private investment firm Najafi Cos., will pay $1.1 billion in cash, or $9.50 for both Class A and Class B shares, and take the company private, Phoenix-based Apollo Education said in a statement Monday.

The price represents a 44 percent premium over the closing price on Jan. 8, the day before Apollo’s board said it was pursuing strategic alternatives. The board approved the planned transaction, which must clear regulatory conditions and is expected to close by August. The stock rose 24 percent Monday in New York to $8.60 a share. Shares topped $75 in October 2009.

“We are excited by the opportunity to build on the transformational work being done by the company,” Tony Miller, Vistria’s chief operating officer, said in the statement. “For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case.”

Miller, a former deputy secretary at the U.S. Department of Education, will become chairman of Apollo Education once the deal closes. The company will continue to “invest in strategic transformation, enhancing student outcomes and career relevant education for working adults,” according to the statement.

Biggest Shareholders

Schroders Plc, Apollo Education’s biggest shareholder with a stake of more than 13 percent, sent a letter to the board last month urging it to resist a takeover. First Pacific Advisors LLC, the company’s second-biggest investor, sent a similar letter to management and told its clients that a deal valued at $1 billion “would be unquestionably rejected by us, and we hope every other shareholder would reject it.”

Apollo Education is worth about $29 a share, First Pacific portfolio manager Dennis M. Bryan said in a phone interview Monday. First Pacific spoke with Apollo Global Management Chief Executive Officer Gregory Cappelli on Monday to express its views, Bryan said.

A spokesman for Schroders declined to comment on Monday’s announcement.

Apollo Education, founded in 1973 by the late John Sperling, is the largest U.S. for-profit college chain in a shrinking industry. Over time it capitalized on the idea that working adults could access higher education online. The federal government paved the way for online degrees by easing the regulatory requirements.

Fewer students have been enrolling in for-profit schools amid recruiting abuses and concerns about student debt.

Former students of the University of Phoenix had the most outstanding federal debt of any U.S. college, according to a study of federal student borrowers using loan data and tax records. Some 1.2 million borrowers had $35.5 billion in outstanding debt as of 2014, according to a September paper co-authored by Adam Looney, deputy assistant secretary for tax analysis at the U.S. Treasury Department.

Declining Enrollment

In a Jan. 11 earnings report, Apollo Education said enrollment at University of Phoenix, when averaged across degree programs, had decreased 20 percent year over year.

The U.S. Department of Education has tightened standards on for-profit education institutions, forcing the schools to demonstrate that graduates have found gainful employment that will allow them to pay off their student debt. If they don’t meet certain requirements, the schools risk not being eligible to participate in the government student loan program.

The U.S. Federal Trade Commission last month filed a lawsuit against an Apollo Education competitor, DeVry Education Group, alleging its advertisements deceived customers about job placements in their fields. The company denies the charges.

Another for-profit educator, Corinthian Colleges Inc. filed for bankruptcy in May, after closing its remaining schools. The Santa Ana, California-based company listed assets of $19.2 million and debt of $143.1 million in its bankruptcy filings.

Barclays Plc, Credit Suisse Group AG and Evercore Partners Inc. are acting as financial advisers to Apollo Education, and Sullivan & Cromwell is giving legal advice to the company. Paul Weiss Rifkind Wharton & Garrison is acting as legal adviser to the investor consortium.

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