Baltimore investment firm T. Rowe Price became the largest shareholder to reject Laureate Education Inc.'s $3.8 billion buyout agreement, saying yesterday that the management-led deal undervalues the long-term potential of the company.
T. Rowe Price, Laureate's second-largest institutional shareholder with 8.1 percent of its shares, said in a filing with the Securities and Exchange Commission that it plans to vote against the proposal because "it is not in our clients' best interests."
The firm said it wants the for-profit higher education company to remain publicly traded given Wall Street analysts' strong financial forecasts about Laureate's future.
T. Rowe Price managers John H. Laporte and Brian W. H. Berghuis wrote a letter to Laureate's board of directors informing them of their opposition to the deal. The letter was included in the SEC filing.
"We believe the board should be thinking of the long term and not just what might seem like a justifiable price today," Laporte said in an interview yesterday.
T. Rowe Price, which has invested in Laureate since 1995, is the second shareholder to publicly oppose the management-led buyout plan.
Last week, Select Equity Group Inc., a New York hedge fund and Laureate's third-biggest institutional shareholder, said it would not support the proposal because the $60.50 per share price is "grossly inadequate."
Both companies also complained that the buyout deal carries conflict-of-interest concerns because the purchasing group is led by Chairman and Chief Executive Officer Douglas L. Becker.
Chris Symanoskie, Laureate's director of investor relations and corporate communications, said yesterday that shareholders should reserve judgment about the buyout until they read the proxy "to see why we consider the proposed transaction in the best interest of shareholders." The proxy is expected to be filed next week.
Symanoskie said the special committee conducted a "very thorough and diligent process" before recommending the buyout to the board, which unanimously approved the deal.
T. Rowe Price owns 4.23 million shares of Laureate's 51.9 million outstanding shares, according to financial filings.
Select Equity owns 3.67 million, or 7.14 percent, of Laureate's shares. James R. Berman, general counsel at Select Equity, could not be reached for comment yesterday.
Laureate's largest institutional shareholder, William Blair & Co., which owns about 9.6 percent of shares, declined to comment on its stance yesterday.
T. Rowe Price cited Wall Street analyst forecasts for Laureate of 25 percent earnings growth per year for the next three to five years and at least 15 percent to 20 percent thereafter. As a result, Laureate will have the fastest earnings growth among its competitors, T. Rowe Price said.
"By merely offering a price that is only a little bit above what the stock had been trading, we don't think it incorporates the growth potential the company has in the years ahead," Laporte said.
Laureate, operator of online and foreign universities, announced in January that it had agreed to be bought by the management-led group. The proposal is considered to be the largest buyout in the for-profit education sector.
The deal requires shareholder approval.
The management-led offer represented an 11 percent premium over the price of Laureate's shares at that time. And Laureate said the $60.50 per share price is 33.8 times the company's earnings from continuing operations for the 12 months ending Sept. 30.
But T. Rowe Price said the buyout offer values Laureate at 24 times analysts' estimated earnings for this year, lower than 25 times the estimated average earnings for the for-profit higher education industry.
Shares traded between $48.47 and $54.41 during January before the announcement was made Jan. 28. Since then, shares have traded between $59.46 and $60.80.
Laureate shares rose 78 cents, or 1.31 percent, to close at $60.27 yesterday on Nasdaq.
Besides objecting to the deal's value, T. Rowe Price said it has concerns about how the buyout process was conducted, citing defects in the bidding process and the conflict of interest raised by Becker's involvement in the deal.
Select Equity also contended that an inherent conflict of interest exists in management-led buyouts, with the buying group trying to get the lowest price for the company.
Under the deal, Laureate's special committee can solicit competing proposals until March 14.
But Laporte said a competing bid may be hard to come by considering Becker's lead role in the buying group.
'Regard' for CEO
"One of the reasons we've invested in Laureate is because we have a high regard for the management and very high regard for the ability of Doug Becker to grow the company successfully over the next five years or more," he said.
"For anyone to think about making a competitive bid for the company and knowing that Doug and other members of management may not be part of the ongoing company, I think it makes it much harder to consider an offer."