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Embattled Univ. of Phoenix Operator to be Taken Private in $1.1 Billion Transaction

Apollo Education Group To Be Acquired by Unaffiliated Private Equity Fund Apollo Global Management
February 8, 2016
Going against the stated wishes of its largest independent stockholder, Apollo Education Group Inc., one of the largest operators of private, for-profit education facilities, agreed to be acquired by a consortium of private equity investors, including The Vistria Group LLC, funds affiliated with private equity group Apollo Global Management LLC , and Najafi Cos.

The buyers are offering $9.50 per share in cash for the operator of the University of Phoenix campuses across the U.S., which equates to a total purchase price of $1.1 billion. The offer represents a premium of 30% over Apollo Education Group’s 30-day volume weighted average stock over the closing price on Jan. 8, 2016, just before Apollo Education announced it was pursuing strategic alternatives.

Folloowing that announcement, Schroders Plc, Apollo Education’s biggest shareholder, urged the board to reconsider selling the business, saying a takeover was unlikely to be in the best interests of investors given how far the firm's share price had fallen.

U.K. asset manager Schroders owns more than 13% of the U.S. company.

"We see the potential for multiple hundreds of percent of upside in Apollo’s stock from current levels over a period of years," Schroders’s global value team wrote in the letter. "We therefore urge the board to reject any proposals that would deny shareholders the opportunity of benefiting from this significant recovery potential."

Schroders Global Recovery Fund first bought the shares in October 2013 when Apollo Education had a market value of $3 billion.

The new deal with the private equity consortium is subject to customary conditions, including the approval of shareholders.

"The Apollo Education Group board of directors reviewed strategic alternatives and believes this transaction is in the best interest of all shareholders and strongly supports our transformation efforts,” said Greg Cappelli, CEO of Apollo Education Group.

"This new structure will allow Apollo Education Group the flexibility and runway it needs to complete the transformational plan at University of Phoenix, which will enable us to serve our students more effectively during a period of unprecedented volatility within our industry," added Cappelli.

Tony Miller, chief operating officer and partner of The Vistria Group and former deputy secretary of the U.S. Department of Education, will become chairman of the Apollo Education Group Board following the transaction closing.

"For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance," said Miller. "This doesn’t need to be the case. We are committed to accelerating and enhancing efforts to establish University of Phoenix as the leading provider of quality higher education for working adults and to continue supporting the organization’s commitment to operating in a manner consistent with the highest ethical standards.”

The University of Phoenix reported first quarter 2016 enrollment in its degreed programs was 176,900 compared to 227,400 a year ago. The company said it thinks enrollment will bottom out at about 140,000 students.

The company reported an operating loss for the first quarter of $45.2 million, compared to operating income of $64.2 million a year ago. It is in the process of closing down 150 campus locations across the U.S., and is considering other options for reducing costs.

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