Sylvan to buy Calif. firm $638 million purchase of National Education is 'potential home run'

March 13, 1997|By Greg Schneider | Greg Schneider,SUN STAFF

Sylvan Learning Systems Inc. said yesterday that it has agreed to purchase National Education Corp. of California for stock worth roughly $638 million, a move that more than doubles Sylvan's size and creates one of the nation's largest education services companies.

The new firm will retain Sylvan's name and Baltimore headquarters, and is expected to post almost $500 million in annual revenues.

Wall Street flinched at the news yesterday as Sylvan stock fell 15 percent, or $5.25, to close at $29.875.

But analyst Michael Moe of Montgomery Securities said he thought the price would rebound once investors understand the strengths of the complex marriage.

"I think it is a potential home run," Moe said. "The idea of being able to funnel [NEC's] services and products through the distribution network that Sylvan has created I think creates enormous potential."

Douglas Becker, co-chief executive officer of Sylvan, said he understands Wall Street's initial skepticism. "I think the question on Wall Street is, can the combined company continue to grow at an accelerated rate? We've done a very, very careful evaluation of that issue and have come to the conclusion that it clearly can," Becker said.

NEC, which has headquarters in Irvine, Calif., is a leading provider of computerized job training, tutorial materials and programs for distance learning, which used to be called "correspondence courses" but now involve the Internet and satellite links.

Sylvan provides computerized job testing as opposed to training, has a network of 650 Sylvan Learning Centers that offer tutorial services in malls and business centers and is building a distance-learning network through its Caliber system.

The company has been expanding mightily in recent months, but Becker said this acquisition is probably the peak.

"This is certainly the biggest news in the education industry probably since its inception, so I don't think we're going to try and top it," he said. "Our focus now will be on making the most of what we have."

Becker said the boards of both companies have approved the deal, and that the sale should conclude during the second quarter provided it clears federal anti-trust review and gets shareholder approval.

Sylvan will issue 0.58 shares of common stock for every share of NEC common stock, a value of roughly $17.33 a share based on yesterday's closing stock price. NEC shareholders will have a 47 percent interest in the merged company. The deal can be rTC canceled, Sylvan said, if its stock price falls below $29.85 a share 10 days before closing.

The action culminates a busy period for Sylvan, which last year reported revenues of $157.1 million and net income of $14.7 million. The company moved its headquarters from Columbia to downtown Baltimore last November. In December, Sylvan unveiled a partnership with the National Geographic Society to offer after-school education programs nationwide. And in January, Sylvan purchased Wall Street Institute, which offers English language instruction in 170 centers in Europe and Latin America.

NEC had net income last year of $21.4 million on revenues of $288.8 million. The company was near bankruptcy just two years ago, Moe said, but has recovered under a new management team that will remain on board with Sylvan.

NEC President and Chief Executive Officer Sam Yau will join Becker as co-CEO of the new Sylvan. Sylvan's current chairman and co-CEO, Christopher Hoehn-Saric, will be chairman.

Yau said in a news release that he was particularly attracted to Sylvan because of its prestigious affiliations. Besides joining with National Geographic on the after-school program, Sylvan administers the Scholastic Assessment Test with the Educational Testing Service and is working with the Johns Hopkins University on educational programs for children.

Moe said the new company will have almost unprecedented stature in an educational services market that is estimated to be worth $600 billion a year but that is "unbelievably fragmented."

"Who are the brand names in education? You can probably get to five fingers before you run out of names: Harvard, Yale, Sylvan, Kaplan. This does give Sylvan the opportunity to be the leading pur- veyor of education services," he said.

NEC brings three major operations:

ICS Learning Systems, which offers vocational, academic and professional studies material for distance learning.

National Education Training Group, which offers interactive media-based learning products.

And a majority interest in Steck-Vaughn Publishing Corp., a major provider of supplementary educational materials for grades K-12 and for special education, remedial learning and adult basic education.

Becker said the acquisition of those units is expected to increase Sylvan's earnings right away, before the operations are fully integrated. He said the resulting company will offer educational services for every age group, from kindergarten through adult professionals.

Sylvan also hopes to capitalize on NEC's extensive direct marketing and customer service expertise, Becker said. He added that while Sylvan has been aware of NEC for many years, it never regarded the California company as a potential partner because of NEC's past financial difficulties.

Now, Becker said, the company has turned around and is growing vigorously. One of NEC's growth areas has been in offering American-style education in foreign countries, he said.

Combined with Sylvan's existing presence in some 80 countries, Becker said, the new company will be "the leading exporter of American education to the rest of the world."

Pub Date: 3/13/97

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