Vistria, one of the potential buyers, is run by Martin Nesbitt, widely described as President Obama's best friend. And that label is probably not hyperbole. Nesbitt was Obama's campaign manager for both his 2008 and 2012 presidential campaigns, and Nesbitt now heads the Obama Foundation, which will oversee the construction of Obama's Presidential Library. Yes, Nesbitt may really be Obama's best friend.
Why is Apollo Education Group, a publicly traded company, selling out to three private equity groups? Perhaps because things aren't going well with the University of Phoenix, Apollo's principal asset.
In its heyday, UP enrolled almost half a million students and raked in more than a billion dollars a year in federal student aid money. UP's parent company was worth $16 billion, and its stock soared to $95 a share.
But times have changes. UP's enrollment has plummeted to less than 200,000, forcing it to close some campuses. In 2015, the Federal Trade Commission began investigating. Today the stock is trading at below $8 a share, and the company is worth less than 1/16 its peak value.
So the big boys decided it was time to put some lipstick on their pig and sell it.
And if the sale goes through, Apollo's insiders will do very well. According to a story appearing last month in the Arizona Republic, the sale would provide gold parachutes to several top executives:
- Greg Cappelli, Apollo Education's CEO, would get $4.2 million in cash and $3.1 million in equity and other benefits.
- Sean Martin, Apollo Education's General Counsel, would get $1.4 million in cash and $4.2 million in stock.
- J. Mitchell Bowling, Chief Operating Officer, would get $1.5 million in cash and $1.8 million in stock.
- Timothy Slottow, president of University of Phoenix, would get $2 million case and $717,000 in stock.
- Gregory Iverson, Apollo Education's chief financial officer, would get almost a million in cash and $1.7 million in stock.
And who are the potential buyers? Three private equity groups are partnering to buy Apollo Education Group: Phoenix-based Najafi Companies; Apollo General Management (not affiliated with Apollo Education Group); and Chicago-based Vistria Group, founded and run by Obama's good friend, Martin Nesbitt. Tony Miller, who served as President Obama's Deputy Secretary of Education from 2009 to 2013, has been tapped to run the University of Phoenix operations.
But the deal may not go through. First of all, shareholders may not approve the sale. Schroders Global Recovery Fund, a British equity group, is Apollo Education's biggest shareholder. Schroders bought its stock when Apollo was worth about $3 billion, probably thinking Apollo's stock price would rise and it would make a killing.
Schroder doesn't want to sell to the private equity groups because it would suffer a huge loss. The Schroders team said this: "We see the potential for multiple hundreds of percent of upside in Apollo’s stock from current levels over a period of years." And Andrew Lyddon, Schroders' fund manager, said last January that Apollo Education has "had everything thrown at it, but we think it would be terrible for shareholders at this point if management were to capitulate.”
Earlier this week, the Apollo Education board issued a statement stating that a sale to the consortium "is in the best interests of shareholders" and indicated that it would explore the possibility of selling the University of Phoenix if the sale of Apollo Education doesn't go through. (Apparently, the board can sell the University of Phoenix without shareholder approval.)
I am not a "master of the universe" financial wizard. I can hardly balance my own checkbook. Nevertheless, I doubt whether this sale will ever be finalized. The opposition of the Schroders group may stop it--the folks would take a big haircut if Apollo Education sold out for only about $1 billion.
But apart from this challenge, I think there is a growing awareness that the for-profit college industry is ceasing to be a good investment for private equity groups. People made a killing in this racket a few years ago, but students are becoming more sophisticated than they once were and enrollments are dropping. Moreover, public universities now offer an array of online degree programs that once made the University of Phoenix distinctive; and the public universities usually offer online programs at much more affordable prices than the for-profits.
It would not surprise me if Martin Nesbit and his rich hedge-fund cronies decided to back out of their tentative deal to buy Apollo Education Group. And that would be a shame, because that would suck all the air out of a bunch of golden parachutes.
Ronald Hansen. Apollo Education sale 'golden parachute' could be worth $22 million to executives. Arizona Republic, March 8, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/03/08/apollo-education-sale-executives-payout-22-million/81483912/
Sarah Jones. Top Apollo Education Investor Urges Board to Resist Takeover. Bloomberg News, January 29, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-01-29/top-apollo-education-investor-urges-board-to-resist-takeover
Patria Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, Will Be Taken Private. New York Times, February 8, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html
Soyong Kim. Apollo teams with Washington insider for education deal. Reuters, January 12, 2016. Accessible at http://www.reuters.com/article/us-apollo-education-m-a-apollo-global-idUSKCN0UQ23W20160112