Laureate receives no other offers

Sole $3.8 billion bid goes to shareholders

March 17, 2007|By Hanah Cho | Hanah Cho,Sun reporter

Laureate Education Inc. has received no buyout offers to compete with the $3.8 billion bid it tentatively accepted from chief executive Douglas L. Becker's investor group, according to a preliminary proxy filed yesterday.

The board of directors had decided as a condition of accepting the Becker group's $60.50-a-share bid to seek higher proposals for a 45-day period that ended Wednesday.

Sixty-seven potential buyers were contacted but only two, both unidentified private equity firms, went so far as to sign confidentiality agreements to review financial information.

Neither made an offer by the deadline, according to documents filed with the Securities and Exchange Commission late yesterday.

The potential buyers pointed to a high asking price and amount of equity funding needed to pay more than $60.50 a share, among other reasons, the SEC documents say.

The $3.8 billion transaction, which requires shareholder approval, is believed to be the largest buyout in the for-profit education sector. Baltimore-based Laureate operates online and foreign universities, mostly in Europe and Latin America.

The deal has drawn criticism from Laureate's two large institutional shareholders, hedge fund Select Equity Group and Baltimore mutual fund giant T. Rowe Price, which own more than 15 percent of Laureate shares between them.

Both have said they plan to vote against the deal because it undervalues the company's long-term potential and because the sale process was tainted by conflicts of interest.

The proxy statement attempts to answer those criticisms.

The deal, approved unanimously by Laureate's board, was recommended by a special committee tasked by the board to oversee the bidding process.

The committee had determined that the per-share price, which was 11 percent more than the prevailing market price of Laureate stock, was "more favorable to the company's unaffiliated shareholders than the potential value that might result from other alternatives reasonably available to the company," according to the proxy.

The committee considered the likelihood that the company would encounter increased competition in Latin America; that the company's plans to enter new markets, including China, may be delayed, resulting in unprofitability in the short-term; and that the company's tax rate likely would increase over time as it tries to bring back funds generated by its foreign operations to the U.S.

Beside Becker, other investors include private equity firms Kohlberg Kravis Roberts & Co., Citigroup Private Equity; hedge fund S.A.C. Capital Management; and Sterling Capital, of which Becker is a founder and manager.

R. Christopher Hoehn-Saric, chief executive officer of Baltimore-based Educate Inc. and a Laureate director, is also a founder and manager at Sterling Capital. Both men abstained from voting on the buyout offer.

Educate and Laureate were part of the old Sylvan Learning Systems until that company was broken up, with Educate becoming an independent company. Educate is now also in the process of going private, through a buyout led by Hoehn-Saric.

As part of the Laureate deal, Becker would receive approximately $104.8 million in payouts for canceled stock options and restricted stock, the proxy shows.

Shares of Laureate dropped 20 cents to close at $59 yesterday in Nasdaq trading.

The SEC documents reveal that Becker approached the board in June to explore a possible buyout of the company by private equity investors.

In August, Becker was granted permission to speak with Sterling Partners, of which he is a founding member, although the board at that point said he could only approach Sterling for "advice and counsel," the proxy states.

But the next month, Becker submitted a bid of $55 per share in partnership with some other Sterling founders. It was the first of three proposals that the special board committee rejected before agreeing to the $60.50-per-share offer, according to the proxy.

Becker was asked to withdraw his first offer, and the board required him to follow certain protocols before going further.

Those included seeking approval before contacting any equity or debt financing partners and not agreeing to work exclusively with any buyer, according to the documents.

By December, Becker had raised his bid to $59.25, but the board was holding out for $62 a share, the proxy shows. When Becker balked, the special committee decided it would recommend to the full board that his offer be rejected.

Told what the committee planned to do, Becker upped his offer to $60.50 per share, saying it would be his best and final offer, the proxy states.

The special committee and its advisers, Morgan Stanley and Merrill Lynch, accepted on condition that it would seek better offers for 45 days.

hanah.cho@baltsun.com

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