The $1.1 billion sale took nearly a year to close because the for-profit college operator needed the blessing of the Education Department and the Higher Learning Commission, a college accreditation agency. The commission voted in favor of allowing the schools to retain their accreditation last week, about a month after the Education Department signed off on the change of ownership.
Education officials waited until the close of the year before handing down stringent conditions with its approval, tempering concerns over the involvement of Vistria Group, a private-equity firm run by former president Barack Obama’s friend Marty Nesbitt and former deputy education secretary Tony Miller.
Vistria is among a consortium of investors taking Apollo private, but its ties to the Obama administration led critics to question the Education Department’s objectivity in approving the deal. After all, holding for-profit colleges accountable for poor student outcomes and abusive practices had been a cornerstone of the Obama administration’s higher education policy. Phoenix, like other for-profit schools, has contended with government investigations and heightened federal regulation.
To remain in the federal student aid program, Phoenix and Western must cap enrollment levels, submit projected cash flow statements, produce monthly student rosters, alert the department to any investigations and commit to a recruitment standard, among other things. Education officials’ reporting requirements essentially place the same demands on the private company as a publicly traded business.
Investors must also provide a letter of credit from a bank assuring the availability of as much as $385 million, about 25 percent of the federal loans and grants the schools receive, under the department’s terms. The letter is meant to protect students and taxpayers if the school is unable to cover federal student-aid liabilities, but some observers wondered whether the demand would sink the deal. The consortium, however, forged ahead.
“We believe we are uniquely positioned to enhance efforts by University of Phoenix and the other Apollo Education Group schools to improve student outcomes,” Miller said in a statement. “In this increasingly competitive global economy, it has never been more important to ensure more students graduate with the education, skills and credentials that enable advancement in the job market.”
Miller, chief operating officer of Vistria, will become chairman of the Apollo board. He served as deputy secretary at the Education Department from 2009 to 2013.
The transaction has long been approved by Apollo’s board and shareholders. Initially, the group of investors, including funds affiliated with Apollo Group Management and Najafi Companies, were offering $9.50 a share in cash for the outstanding shares of the company. They upped the acquisition price to $10 per share in May, which represents a 52 percent premium over Apollo’s closing price on Jan. 8, when the board of directors said it would considering its options.
Profits at Apollo have slid over the past few years, but the company is turning around. In three months ending Nov. 30, operating income was $8.4 million, compared with an operating loss of $45 million the previous year. Enrollment at the flagship University of Phoenix during that time, however, slipped from 176,900 to 135,900.
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