Educate Inc. executives hope the tutoring company's new life as a privately held business will enable it to move beyond its financial struggles after shareholders approved yesterday management-led buyout of the Baltimore-based operation.
Company executives announced that 75 percent of Educate shareholders approved the $535 million deal. Shareholders will receive $8 a share from the management-led investment group, including Chief Executive Officer R. Christopher Hoehn-Saric and others.
Best known for its Sylvan tutoring centers, Educate likely will stop trading on the Nasdaq stock market during the next few days, company executives said. That will end Educate's three-year run as a publicly traded company, which comes as the firm has struggled financially with poor product sales.
The company reported an $11.9 million loss for 2006 on revenue of $354.7 million.
Educate shareholders who signed on to the company when it first went public in September 2004 have watched the stock fluctuate. It closed at $11.69 on its first day of trading and reached as high at $17.11 in 2005.
Last year, as financial troubles mounted, shares traded as low as $5.69.
The $8 buyout price represents a 13 percent premium over where the shares were trading when executives announced the proposal in September.
Shares rose 1 cent to close at $7.97 yesterday.
Many of the company's troubles came as students began enrolling in tutoring programs for shorter periods of time, and staff turnover contributed to lower performance, company executives have said. The company's Hooked on Phonics brand capped concerns as sales of its infrequently updated curriculum-based products declined at tutoring centers.
But executives said going private will help the company put its financial troubles behind it without the glare of Wall Street.
"This will give us the opportunity to focus on our individual lines of business," said Kevin E. Shaffer, Educate's chief financial officer, who is part of the investor group taking the company private. "By going private, we think we can catapult our institutional relationships."
Yesterday's nine-minute shareholders' meeting at Harbor East had little suspense since Educate's largest shareholder, Apollo Management, had agreed to vote in favor of the buyout. Apollo, whose executives did not return telephone calls yesterday, owns 52 percent of the company.
Company executives crafted the buyout proposal in September and entered into a formal agreement with Hoehn-Saric in January. Hoehn-Saric owned 4.6 percent of the company's outstanding common stock as of May 9, 2007, according to financial documents filed with the Securities and Exchange Commission.
Along with Hoehn-Saric, Educate's investment group includes Chief Operating Officer Peter J. Cohen; Christopher J. Paucek, president of Educate Products, Sterling Capital Partners and some of its co-investors, including Citigroup Private Equity.
Formed in 2003 by the split of Sylvan Learning Systems Inc., Educate acquired Sylvan's prekindergarten-through-12th-grade tutoring business. Sylvan, which changed its name to Laureate Education Inc., created a niche in the higher education market.
Educate's management team started out by refranchising the more than 1,000 corporate-owned centers it acquired upon Sylvan's split, but a shift in advertising spending led to revenue dips and higher costs.
Baltimore-based Laureate, which also is facing a management-led buyout to take the company private, is having more trouble persuading shareholders to approve that $3.82 billion deal. Laureate's financial fortunes are better than Educate's and some of its top shareholders believe the $62-a-share offer is too low - one shareholder announced opposition this week. Hoehn-Saric, who bought and ran Sylvan with Laureate CEO Douglas L. Becker, is a Laureate board member. Becker is an Educate board member.
Educate's financial concerns carried over to this year. In its most recent financial reporting, Educate said net income fell 29 percent to $2.4 million, or 5 cents per share, in the three months that ended March 31. In the first quarter one year ago, net income was $3.3 million, or 8 cents per share.
The company, which employs 2,300 full-time employees and 6,450 part-time workers in the United States and Canada, has more than 100 people in Baltimore. The company's headquarters will remain in the city, executives said, as Educate works to change its financial course.
"We will be changing the structure of the company," said Cohen, the president and chief operating officer. "This is just a step in the process."