Bid to take Educate private seems on track

BUSINESS DIGEST

May 11, 2007|By Hanah Cho | Hanah Cho,Sun reporter

The proposal to take Educate Inc. private in a management-led buyout appears to be on track with shareholders expected to meet on or about June 12 to vote on the transaction, according to financial documents filed yesterday.

The Baltimore company best known for its Sylvan tutoring centers also announced what likely will be its last quarterly earnings report as a public company.

Net income declined 29 percent to $2.4 million, or 5 cents per share, in the three months that ended March 31, compared with $3.3 million, or 8 cents per share, in the year-ago first quarter. Last year's net income included almost $2 million from the sale of Education Station, a piece of Educate's No Child Left Behind business.

Shares rose 3 cents to close at $7.84 yesterday on the Nasdaq stock market.

In January, Educate entered into an agreement with Chief Executive Officer R. Christopher Hoehn-Saric and other top executives to take the company private. The group would pay $8 a share, or about $535 million, including debt.

Analysts say they expect the deal to go through, considering the company's largest shareholder, with about 52 percent of its stock, has agreed to vote in favor of the buyout. Apollo Management controls four seats on the nine-member board. And analysts say the transaction makes sense because it allows Educate to turn around its recent struggles outside the critical eye of Wall Street. With shareholder approval, the deal will close almost immediately after the vote, said Kevin E. Shaffer, Educate chief operating officer.

In the past year, Educate's core tutoring business has faltered as it struggled to integrate dozens of franchised tutoring centers bought by the company, resulting in staff turnover and lower performance. It also experienced higher expenses related to developing and selling Hooked on Phonics and other consumer-branded products.

Revenue at company-owned tutoring centers slipped 9 percent to $32.6 million. Educate blamed the decline on the shift in advertising spending and costs related to refranchising some corporate-owned centers. In the first quarter, the company sold 10 learning centers to franchisees and reported a gain of $1.8 million. The company has 1,134 franchise and corporate centers.

Product sales increased 35 percent to $3.7 million because of expanded lines that included Hooked on Spanish and Hooked on the Bible. Expenses for the products business, however, rose 26 percent.

Revenue from Educate's online division grew 54 percent to $7.8 million, a result of increased program offerings to students in No Child Left Behind programs.

Total sales increased to $97.2 million in the first quarter compared with $92.9 million in the corresponding period last year.

"We have made improvements in the operating income of the business year over year," Shaffer said. "There's been some revenue growth."

hanah.cho@baltsun.com

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