Sylvan Learning Systems Inc. said yesterday that it will pursue its plan to acquire National Education Corp. of California, despite a higher bid from a competitor.
"We are committed to proceed toward a finalization of this merger as planned," said Douglas L. Becker, co-chief executive officer of Baltimore-based Sylvan.
His comments came in response to a surprise $740 million cash tender offer for NEC Wednesday from Harcourt General Inc. Sylvan made a $664 million stock offer for NEC last month.
"This is our first takeover battle," said Becker. "Obviously, to be .. engaged in a battle with such a large organization as Harcourt was not our expectation."
Harcourt, based in Chestnut Hill, Mass., is much larger than Sylvan. It has a market capitalization of $2.2 billion, compared with Sylvan's $750 million.
"We will possibly have a bidding war," and Harcourt has the "deep pockets" needed to win, said Ivan Obolensky, an analyst with Shields & Co.
Michael T. Moe, an analyst who follows Sylvan for Montgomery Securities, was not sure that there would be a bidding war.
Moe said the synergies from a combination of Sylvan and NEC could be worth more to investors than the face value of Harcourt's cash bid. "I think that Harcourt will have to raise their bid," he said.
NEC's stock traded yesterday at $19.625, slightly above Harcourt's $19.50-a-share offer.
Becker wasn't ready to say yesterday that Sylvan would raise its own bid for NEC to beat Harcourt's. "Well, I'm not sure that is clear," he said. He explained that some key shareholders of NEC are also key shareholders of Sylvan.
"A number of their [NEC] shareholders have a real sense of the importance of this combination, and I believe that they are going to be weighing more than just the value of a cash offer against the upside of a combination of these two companies," said Becker.
He said that by the time shareholders would pay taxes on the transaction, the difference between the two offers would be so small that the shareholders might favor the combination of Sylvan and NEC because of the future growth potential.
"We are going to pursue our strategy [of growth through acquisitions], whether we get NEC or not," Becker said.
"The loss of this deal, in my opinion, would not be a terrible setback for Sylvan."
NEC issued a statement yesterday acknowledging Harcourt's unsolicited tender offer. It said that the board of directors of NEC will meet "in due course" to evaluate the Harcourt proposal and will advise shareholders about its conclusion.
NEC, based 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 involves the Internet and satellite links. It had revenues of $288.8 million last year.
Sylvan, which provides computerized job testing, has a network of 650 Sylvan Learning Centers that offer tutorial services in malls and business centers. The company is building a distance learning network through its Caliber system.
Harcourt is an international publisher and specialty retailer.
Pub Date: 4/18/97