Firm's critic builds stake

Hedge fund opposing Laureate buyout now largest shareholder

April 14, 2007|By Hanah Cho | Hanah Cho,Sun reporter

A New York hedge fund that opposes the management-led buyout of Laureate Education Inc. has snapped up enough Laureate shares in recent days to become the Baltimore company's largest shareholder.

Select Equity Group, which began investing in Laureate in 2003, owns 5.05 million shares of Laureate's 51.4 million outstanding shares, or 9.82 percent, according to documents filed yesterday with the Securities and Exchange Commission.

Select Equity had been Laureate's third-largest shareholder as of February. Executives there could not be reached for comment yesterday.

The hedge fund is one of three shareholders to publicly oppose the buyout, saying that the deal's $60.50-per-share price is too low and that the negotiations were tainted by conflicts of interest. The other two are Baltimore's T. Rowe Price Group, Laureate's second-largest shareholder, and BlackRock Inc.

The three investors collectively hold about 21 percent of Laureate's shares.

Laureate, an operator of online and foreign universities, announced in January that it had agreed to be bought by investors led by chief executive Douglas L. Becker in a deal worth $3.8 billion, including debt.

Besides 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.

Becker, Hoehn-Saric and members of Sterling Capital collectively own about 7.3 percent of Laureate shares, according to financial filings. Laureate's directors and executives other than Becker and Hoehn-Saric hold about 6.4 percent.

After making public its opposition in February, Select Equity bought Laureate shares in thousands of transactions - in amounts as small as two shares - between Feb. 16 and Thursday. During that time, Select Equity bought nearly 1.4 million shares.

Chris Symanoskie, Laureate's director of investor relations and corporate communications, declined to comment yesterday on Select Equity's buying binge.

Trace Urdan, an analyst at Signal Hill Capital Group, said Select Equity's purchases have created "a showdown for which side can secure the 50-plus percent they need to get the deal through."

If the deal is not approved, Urdan said the "stock is in a tough situation with arbitrageurs likely selling immediately."

Shares of Laureate rose 4 cents to close at $59.08 on the Nasdaq yesterday.

Becker and other company officials have been making their case that the going-private deal is in shareholders' best interests.

A presentation for investors filed with the SEC listed risks the company likely faces in the future, including increased competition for students; increased volatility as the company expands into new markets, including China; and a possibility that the company's tax rate will increase as it tries to bring back to the United States funds generated by its foreign operations.

The proposed buyout, which is subject to shareholder approval, is expected to close at the end of the second quarter. A date has not been set for the vote by shareholders.

hanah.cho@baltsun.com

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