Ronald J. Hansen

The Republic | azcentral.com

After nearly 22 years as a publicly traded company, shareholders of the parent to the University of Phoenix approved a $1.14 billion sale Friday that hands the for-profit school over to a trio of private investors.

Investors representing 54 percent of shares accepted the sale of the Apollo Education Group. The approval came after the company extended the period to vote on the buyout by eight days and the new owners increased their offer to $10 per share, 50 cents higher than the original deal.

The sale to Apollo Global Management of New York, the Vistria Group of Chicago and Najafi Companies of Phoenix is still subject to regulatory scrutiny that could take months more.

“We appreciate the support from our shareholders in approving this transaction,” said Greg Cappelli, CEO of Apollo Education. “This has been a robust process in which our Board of Directors reviewed many strategic alternatives and found this transaction to be in the best interest of all stakeholders. We believe this new ownership structure will allow Apollo Education Group to continue to transform University of Phoenix, further expand our global operations, drive operational efficiency and serve as the leading provider of high-quality education for working adults.”

The buyout, however, likely ends a key chapter in the corporate life of the University of Phoenix.

From an upstart pioneer of adult education and distance learning to a high-flying stock, Apollo Education ends its era as a publicly traded company under a cloud of government investigations and as a symbol of the now-shrunken for-profit education industry. That industry has drawn criticism for coursework that too often leaves students and taxpayers saddled with debt and middling career options for graduates.

Apollo Education’s $10 per share sale price was 12 percent over the stock's closing value of $8.95 Friday and 52 percent higher than the stock price in January, when the company first made public it was for sale. The company's stock will remain active until the deal closes and was rising in early after-hours trading.

MORE: University of Phoenix suitor sweetens Apollo offer | Apollo stock soars after buyout offer is hiked

In taking the deal, shareholders cut their losses with a company that had seen its stock wither from $89 in 2009 to $6.31 earlier this year.

While public investors walk away, the new private owners inherit thousands of anxious employees who have seen jobs hacked for years as the flagship university hemorrhaged students. The new owners didn't outline their immediate plans or rule out more layoffs.

In earlier remarks, company officials said private ownership would allow them the time needed to reverse their losses without facing the pressure to file quarterly reports that please investors.

Tony Miller, a partner at the Vistria Group, will become chairman of Apollo Education when the deal closes. He would effectively replace Peter Sperling, the current chairman of Apollo Education and the son of the company's founder, John Sperling.

In a statement, Miller said, “We are committed to making University of Phoenix the most trusted provider of career-relevant higher education for working adults in the country. We have a vision for how to dramatically improve student outcomes, while addressing the concerns from critics of the for-profit education industry. It remains our belief that success is rooted in graduating students with the knowledge and skills that employers need, in an affordable way that ensures a compelling return on their educational investment.”

Miller, a former deputy secretary of the U.S. Department of Education under President Barack Obama, acknowledged the for-profit industry’s struggles in a statement announcing the deal in February.

“For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices, and poor compliance. This doesn’t need to be the case,” he said at the time.

After Sperling, more decline and doubt

The sale comes 21 months after the death of the university's maverick founder, John Sperling, and amid a general pullback in for-profit education due to growing competition from traditional universities and intense government scrutiny.

Schroder Investment Management Group and First Pacific Advisors, the two largest investors in Apollo Education, had made clear they didn't like the deal, which was publicly announced Feb. 8. Most others, however, apparently shared concerns that Apollo Education, bedeviled with dwindling enrollment, a plummeting stock and repeated allegations of fraud and impropriety, had no other viable options.

The buyout generated differing views of its fairness. Glass, Lewis & Co., an independent advisory firm, told Apollo Education the deal offered "the relative certainty of cash at a premium." Meanwhile, Institutional Shareholder Services reportedly described the offer as "extraordinarily low valuation."

Last week, the company noted that it could sell the university even if the takeover failed.

The company itself laid out in stark detail in a 349-page filing to the Securities and Exchange Commission how potential buyers evaporated over the past year as Apollo Education posted worsening finances.

"Many financial investors have refused to consider investing in proprietary education and there is an extremely limited number of strategic investors with both the market capitalization to undertake an acquisition of the company and the ability or willingness to withstand the additional regulatory challenges arising from such a transaction," the company wrote in March.

University of Phoenix lays off 470, most in Arizona

'Golden parachutes' and restrained cash

Cappelli, the current CEO, and other top executives with the company stand to divide about $22.3 million from the sale. Of that, Cappelli could collect $4.2 million in cash and $3.3 million in stock.

As the company laid out its limited options and the "golden parachutes" awaiting the executives, Apollo Education also notified investors of a false-claims lawsuit filed against it in Ohio. The company also faces an ongoing investigation by the Federal Trade Commission and California's attorney general relating to alleged wrongdoing in marketing to members of the military.

Perhaps equally worrisome, Apollo Education was facing an expiring credit line, a recent $70 million loss in business value and a worsening score the U.S. Department of Education uses to permit access to taxpayer-backed student loans, which account for the bulk of company revenues.

The records show that while Apollo Education has cash stockpiles, much of it could be obligated to manage its operations in the future.

The company has cut its enrollment forecast to 130,000, well below the record 470,000 students six years ago.

When Apollo Education joined the Nasdaq Stock Market in December 1994 it had 28,000 students.

Options fell away as drop deepened

The company wrote that its board of directors first sought a partner or buyer in December 2014, four months after Sperling's death and when Apollo Education's stock traded for as much as $34 per share. Working with Credit Suisse and Barclays Capital, 15 investment firms expressed some interest in buying Apollo Education.

On July 15, 2015, 11 of them reviewed the company's finances, but none would make offers for another two months. Instead, Apollo Education announced it was being investigated by the Federal Trade Commission and California's attorney general. The stock skidded from $14 per share to close to $10 in that time.

In September, Apollo received five preliminary bids, ranging from $12 to $16 per share. In October, as the company made presentations to the prospective bidders, Apollo Education notified investors that the Pentagon had placed the University of Phoenix on probation. Later that month, Apollo Education also announced its year-end financial numbers that showed it had missed an earlier revenue forecast by $230 million.

On Nov. 2, Apollo Education received two non-binding offers, one for $9.75 per share and the other for up to $11. The best deal at that time fell apart within 11 days.

Facing rapidly deteriorating revenues and fading access to credit, Apollo Education, through Barclays, reached out to Apollo Global, which had shown an interest earlier. The Vistria Group still had interest, as did the Najafi Companies. In January, all three companies put together a bid they later marked down to $9 per share because of continued poor performance by Apollo Education.

By January, when the company publicly announced it was exploring "strategic alternatives," its stock had fallen to less than $7.

On Feb. 5, the private investors offered $9.50 per share and a day later Apollo Education accepted. On Sunday, with about 46 percent of shares in favor of the sale, but still facing resistance, the consortium upped its offer to $10 per share.

Cappelli's long-term future with Apollo remains unclear. In addition to the potential payout for Cappelli, other top executives could be in line for hefty buyouts:

Sean Martin, general counsel, could get $1.4 million in cash and $4.5 million in stock.

J. Mitchell Bowling, chief operating officer, could get $1.5 million in cash and $1.9 million in stock.

Timothy Slottow, president of the university, could get $2 million in cash and $754,000 in stock.

Gregory Iverson, the company's chief financial officer, could gain $982,000 in cash and $1.8 million in stock.

Reach the reporter at ronald.hansen@arizonarepublic.com.