Old pals in twin buyouts

Laureate, Educate boards OK deals

January 30, 2007|By Hanah Cho | Hanah Cho,Sun reporter

The two Baltimore companies born through the breakup of Sylvan Learning Systems Inc. have shared plenty of things over the years, including office space, human resources functions and even executives who serve on each other's board of directors.

Now, Laureate Education Inc. and Educate Inc. have agreed to take their publicly traded companies private in management-led buyouts. The companies have chief executives who have been close friends since attending the Gilman School and who bought and ran Sylvan together before deciding to split it up in 2003.

In two deals announced late Sunday and early yesterday, executives for Laureate and Educate say converting to private ownership is the best move for shareholders. And as close as both companies have remained since the Sylvan split, Laureate and Educate executives say they are acting separately in taking their businesses private.

The Laureate deal was announced at 9.30 p.m. Sunday, only to be followed by Educate's announcement at 7 a.m. yesterday.

"I understand the coincidence that these transactions came to a head at the same time," said Kevin E. Shaffer, Educate's chief financial officer. "It makes for an odd coincidence, but it's really just that."

Added Chris Symanoskie, Laureate's director of investor relations and corporate communications: "Laureate is operating on its own timetable and continues to pursue its own strategic plan."

Educate, best known for its Sylvan tutoring centers, announced yesterday that it will be acquired by management, including Chief Executive Officer R. Christopher Hoehn-Saric, and other investors. That group has offered $8 per share for the company. Including assumed debt, Educate's transaction is worth $535 million, the company said.

The news came a few hours after Laureate, operator of online and foreign universities, agreed to be bought by a group of investors, led by Chief Executive Officer Douglas L. Becker. That deal is worth $3.8 billion, including debt.

Hoehn-Saric declined to comment yesterday. Laureate executives said Becker was not available to comment.

Educate stock, which had factored in the possibility of a buyout since company executives announced their intentions in September, rose 20 cents to $7.81 yesterday.

Laureate shares rose nearly 12 percent, or $6.39, to close at $60.80. The Laureate deal took Wall Street by surprise.

Company executives did not publicly disclose they were considering a buyout. Becker approached his board of directors with an offer in September, Laureate said Sunday.

If approved by investors and regulators, Laureate shareholders would receive $60.50 per share. The offer represents an 11 percent premium over the price of Laureate's shares as of Friday, which closed at $54.41. Laureate has 51.4 million outstanding shares.

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

The transaction includes a so-called breakup fee in which Laureate would have to pay the buying group up to $110 million if the transaction falls through, according to documents filed yesterday with the Securities and Exchange Commission.

While competing proposals are possible, Jeffrey M. Silber, an analyst at BMO Capital Markets, said the chances are slim considering Becker's involvement with the buying group. A competing proposal would result in Laureate losing a "tremendous amount of value without him there," Silber said.

In contrast, Educate's $8 per share purchase price includes a 5 percent premium over Friday's $7.61 close.

In September, when Educate announced that it had received the buyout proposal, the offer carried a 13 percent premium. The company has about 43 million outstanding shares. The breakup fee on that deal is $16 million.

Besides Hoehn-Saric, the buyout offer came from President and Chief Operating Officer Peter J. Cohen; Christopher J. Paucek, president of Educate Products, and Sterling Capital Partners. Also, some partners and co-investors of Sterling, including Citigroup Private Equity, are part of the group.

Educate's board of directors unanimously agreed to the deal Sunday, according to SEC documents.

Investors of Laureate's deal also include Citigroup Private Equity and Sterling Capital. Others include Kohlberg Kravis Roberts & Co. and S.A.C. Capital Management.

Sterling Capital Partners is the buyout arm of private equity group Sterling Partners of Baltimore. Hoehn-Saric and Becker co-founded Sterling Partners. Becker's brother, Eric D. Becker, is a founder and senior managing director at Sterling Partners.

In each of the buyout deals, Hoehn-Saric and Becker - who each sit on one another's board of directors - abstained from voting on either proposal, according to SEC documents filed by Educate and interviews with a Laureate spokesman.

The business partnership between Hoehn-Saric and Becker goes back nearly 25 years when the two students met while working after school selling computers at a Timonium outlet.

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