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Laureate sweetens buyout proposal

The Baltimore Sun

Laureate Education Inc. responded yesterday to mounting shareholder opposition to a management-led buyout proposal by accepting an increased offer of $62 per share in hopes of appeasing dissatisfied investors.

The Baltimore operator of foreign and online universities said it agreed to the $1.50-per-share increase from an investor group led by Laureate Chairman and Chief Executive Officer Douglas L. Becker. The revised $3.82 billion deal is a 14 percent premium from the closing price of $54.41 on Jan. 26, the last trading day before Laureate announced its original proposal.

It marks the latest offer that was evaluated by a special committee after Becker approached the board of directors in June 2006 to explore a possible buyout.

The committee had rejected three proposals before agreeing to the original $60.50-per-share offer, according documents filed with the Securities and Exchange Commission.

Some analysts said the higher offer is more likely to gain approval by a majority of shareholders, which is needed for the deal to proceed. But they added that the company's largest shareholders - some of whom had opposed the initial buyout - remain keys to the deal's future.

"I think there's a better chance of getting the deal done at $62 than $60.50, but I don't think it'll be enough for everybody," said Jeffrey M. Silber, an analyst at BMO Capital Markets, who does not own Laureate stock.

Shareholders who publicly disclosed their intentions yesterday had mixed opinions.

Still opposed

Baltimore's T. Rowe Price Group, Laureate's second-largest shareholder, "continues to oppose the transaction because we think the company is worth substantially more than this slightly revised offer," spokesman Steve Norwitz said yesterday. Price owns 8.2 percent of the company's shares.

William Blair & Co., Laureate's third-largest shareholder, announced yesterday that it intends to support the higher offer. Blair owns about 6 percent of the shares. The company did not publicly disclose its opinions about the initial offer.

Laureate shares rose $1.52, or 2.5 percent, to close at $61.63 yesterday.

Besides T. Rowe Price, the original deal was opposed by two other large investors, Select Equity Group, a New York hedge fund, and BlackRock Inc. The three companies said the deal's initial per-share price was too low and that the negotiations were tainted by conflicts of interests given that management wanted to take the company private.

Select Equity and BlackRock declined to comment yesterday on the sweetened offer.

Based on the company's earnings growth projections, T. Rowe Price had argued that Laureate's stock price would double to $110 per share over the next three years.

In recent months, Select Equity bought enough Laureate shares to become the largest shareholder, leading some analysts to speculate about a potential showdown as Laureate sought shareholder approval.

Collectively, the three shareholders own 20.2 percent of Laureate's shares. "With 20 percent of the shareholders' base publicly opposing the $60.50 offer, it seems as if there were risks to the deal getting done," said Amy Junker, a senior research analyst for the education services industry at Robert W. Baird Co. Junker does not own Laureate stock.

"The question will be: 'Is the $1.50 increase enough to satisfy the top shareholders?' "

At one point during discussions with Becker about the buyout late last year, the special committee was holding out for $62 per share. But Becker said $60.50 per share would be his best and final offer, a preliminary proxy states.

Facing risks

Laureate argues that going private is in the shareholders' best interest, given risks the company is likely to face, including increased competition for students and increased volatility as the company expands into new markets, including China.

Becker and the investor group - including private equity firms Kohlberg Kravis Roberts & Co., Citigroup Private Equity and hedge fund S.A.C. Capital Management - decided to increase their bid to remove any uncertainty about approval, a source close to the transaction said yesterday.


Before doing so, the buying group received assurance from some investors that they would tender their shares for the higher price, said the source, who declined to name them.

Under the revised transaction, the company is expected to begin a 20-day tender offer Friday. The tender offer needs a simple majority to complete the going-private transaction. If that happens, the investor group will convert the remaining shares for the same price.

The special committee said the tender offer presents an "improved value to Laureate's shareholders in a more efficient and more immediate fashion."

Becker and R. Christopher Hoehn-Saric, a director of Laureate, have agreed to accept the original $60.50-per-share price in connection with the rollover of their shares under the transaction.

Becker and Hoehn-Saric, who abstained from the board vote to approve the higher offer, are founders and managers of Sterling Capital, a member of the investor group.

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.

The company said board members have agreed to tender their shares. If the company does not reach its 50 percent threshold for the tender offer, Becker and Hoehn-Saric can exercise stock options to try and meet that figure.

Gary E. Bisbee, an analyst at Lehman Brothers, wrote in a research report yesterday that Laureate's prospects warrant a higher price but that, "We believe the bump is reasonable and likely to be enough for the deal to go through."

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