Sylvan vows to simplify its business; Diversification doubts prompt plan to sell consulting firm PACE; Stock continues slide; Mix of operations confused investors, company says


In response to criticism that it is too diversified, Sylvan Learning Systems Inc. said yesterday it will simplify its business as its stock price continued to slide.

Shares in the Baltimore-based education company have lost 56 percent of their value since February. Sylvan's shares closed yesterday at $15.1875, down $1.3125.

Sylvan also reported a $9.2 million net loss in its third-quarter earnings, which it attributed to the impact of disposing of PACE, its corporate consultant, training and professional development firm that suffered declining revenue after Sylvan acquired it in 1995.

Sylvan said yesterday that it will sell PACE to Nashville, Tenn.-based Frontline Group Inc. for an undisclosed sum.

"In some ways, we have gotten ahead of ourselves with Sylvan," Douglas Becker, co-chief executive of the company, said. "We were in a unique position to see growth opportunities, and we aggressively pursued those.

"In the process, we created a company that's a little more complex to understand than investors like. Over time, everyone will be very pleased to see a simpler, more streamlined Sylvan."

Sylvan's business lines include the Prometric division, which includes its computer-based testing and English language training business; its contract services division; the learning center division; and the international universities division.

Last month, the company said it would spin off the computer-based testing portion of Prometric.

In the three months that ended Sept. 30, Sylvan posted a net loss of $9.2 million, or 17 cents a share, compared with net income of $12.9 million, or 26 cents a share in the third quarter of last year.

Revenue climbed 28 percent percent to $136.7 million from $106.5 million in the third quarter of last year.

"A few pieces of our business are not very strong, and one area we had to pay attention to is our corporate training arena, which is PACE," Becker said in a morning conference call with analysts. "After we acquired it, we experienced declining revenue."

Selling PACE and spinning off Prometric are all moves in the right direction, said Peter L. Martin, an analyst with Jefferies & Co. Inc. in San Francisco.

"When the stock is going down, and the company is not doing anything materially wrong, they have to ask questions, and the answer they got is [that] they must focus," he said.

"There is so much on their plate, the investment community and Wall Street reflected their desire for the company to focus on its core business."

Scott L. Soffen, an analyst at Legg Mason Inc. in Baltimore, said many other education stocks have suffered price declines. Generally, he said, the strong economy gives people choices other than attending school.

"The whole industry has been crushed, especially since March," Soffen said. Sylvan's internal changes may be able to help its stock price recover, he said.

"It's difficult enough to get a portfolio manager to look at a small-cap stock, and it's more difficult if the company has seven different moving parts, and seven different reasons to like it or not to like it," Soffen said.

During the next six months, Sylvan will have plenty of opportunities to improve its stock value, Martin said, including the spin-off of Prometric, the performance of its international university and the unveiling of online activities.

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