Sylvan spinoff agrees to buyout

$3.8 billion offered for Baltimore-based education company

January 29, 2007|By Hanah Cho | Hanah Cho,Sun reporter

Laureate Education Inc., the Baltimore-based operator of foreign and online universities, announced last night that it has agreed to be sold to a consortium led by its chief executive officer in a $3.8 billion deal that, if approved by shareholders, would make it a private company.

The transaction is believed to be the largest buyout deal in the for-profit education sector and comes amid a boom in private-equity deals for publicly traded companies.

Laureate Education, which operates online Walden University and a series of campus-based universities in various countries, is one of a few large companies still based in Baltimore. A spinoff of the former Sylvan Learning Systems, Laureate employs about 25,000 employees across the globe, including about 450 people in Baltimore. The company has received city subsidies in the past to stay in Baltimore.

The group making the buyout offer is led by Laureate Chief Executive Officer Douglas L. Becker and private equity firm Kohlberg Kravis Roberts & Co. and Citigroup Private Equity, among others.

Shareholders would receive $60.50 per share under the terms of the deal announced late last night. The offer represents a premium of 11 percent over the price of Laureate shares as of Friday, which closed at $54.41.

Laureate said Becker approached its board of directors in September with a proposal for the buyout. The company did not make the offer public but formed a committee to study Becker's offer.

Board members, who said they authorized Becker to seek financial partners to craft higher offers, rejected three different proposals before agreeing to the deal they announced yesterday.

The board unanimously approved the transaction yesterday.

The deal includes a provision where Laureate's special committee will solicit competing proposals during the next 45 days.

"We see many exciting opportunities ahead for Laureate, and we fully intend to keep operating the company as we have in the past. We will remain headquartered in Baltimore, and our valued senior management team will be asked to stay on board," Becker said in a statement. "We also will continue to provide the same high-quality level of service and the wide range of programs our students have come to expect."

The transaction, expected to close at the end of the second quarter, requires shareholder and regulatory approval.

Laureate was born through a complicated breakup of Sylvan Learning Systems. In 2003, Sylvan sold its kindergarten-through-12th-grade tutoring business to focus on higher education and became Laureate Education. The tutoring business became Educate Inc., also based in Baltimore.

If the deal announced yesterday is approved, Laureate would become part of a buyout boom.

Private equity firms are paying a premium to snap up public companies. In the first nine months of 2006, the United States posted a record $200 billion in buyouts, according to data by Thomson Financial. Companies that were bought out last year by private investors included Aramark Corp., the largest U.S.-based food-service company; and HCA Inc., the nation's biggest hospital chain.

Early last year, public-equity firms bought for-profit education company Education Management Corp., the Pittsburgh-based operator of culinary, fashion and health management schools, for $3.4 billion in cash.

In September, Baltimore-based Educate said it received a management proposal to take the company private. Educate's board of directors is still considering the buyout offer of $8 per share. Becker is a member of Educate's board of directors.

Laureate - which owns Walden University, its flagship U.S. online school - focuses on master's and doctoral degree programs. The company does about 80 percent of its business outside the United States. It has more than 240,000 students online and at more than 45 campuses in Latin America and Europe.

Through the first nine months of 2006, the company reported a profit of $49.3 million on revenue of $799 million.

For-profit colleges have experienced large growth during the past several years. Degree-granting for-profit institutions enrolled 702,694 in 2003, the most recent year for which figures are available; in 1997, less than half that number were enrolled at such schools, according to the U.S. Department of Education.

But several institutions, including the University of Phoenix, have been struggling of late with stagnant or declining enrollment. And the industry has been afflicted by regulatory investigations.

But Laureate has enjoyed growth overseas. And the company has been able to persuade city leaders and others to help it keep its headquarters in Baltimore.

Last year, city development officials discussed giving a $3.5 million tax break to developers of a project in Harbor East to keep Laureate in town.

The developers of 800 Aliceanna St. promised to use the subsidy to lower rents for Laureate, their anchor tenant.

In 2000, city officials and state officials offered Sylvan incentives to stay in Baltimore after the company had said it was considering a move to Northern Virginia. A condition of the deal was that Sylvan would add several thousand employees, but when that didn't happen, it had to repay some of the money.

hanah.cho@baltsun.com

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