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DeVry University's ownership changes
Steven R. Strahler
Wildfiredragons
Shares in the former DeVry Education Group climbed today after the Downers Grove company said it would unload its original school—DeVry University—to a California acquirer at no cost.
Enrollment at DeVry University, which includes the Keller Graduate School of Management and focuses on business and technical studies, skidded amid problems of its own creation and those of for-profit education in general.
Last December DeVry and its parent, now called Adtalem Global Education, agreed to pay $100 million and forgive student loan debt to settle a federal lawsuit alleging they misrepresented employment rates and income levels achieved by graduates.
"While such a divestiture has been alluded to, it is still somewhat shocking to us given this was the company's core asset for the bulk of its history," BMO Capital Markets analyst Jeffrey Silber wrote in a note to investors. The fact that acquirer Cogswell Education got DeVry for nothing (outside of a potential earnout) was "a bit surprising," he added.
Cogswell could pay Adtalem $20 million over 10 years if DeVry meets targets for free cash flow. But Adtalem also could suffer penalties and Cogswell could walk away from the agreement, depending on enrollment trends. The transaction is expected to close next summer.
DeVry University's 27,200 students represent more than a third of Adtalem's total, excluding 78,340 in Brazil. Health care programs dominate the rest of Adtalem.
Last month Adtalem cut its revenue forecast for the fiscal year ending next September, predicting sales would fall 2 to 3 percent. Undergraduate enrollment at DeVry University fell 21.4 percent, to 19,287, in the year ended in September. DeVry's Keller Graduate School of Management, with 7,915 students, experienced a similar decline.
Investors seem to believe a smaller, DeVry-less Adtalem will lead to better performance, though Silber says the company will have fewer assets to balance out cyclical results. Piper Jaffray analyst Peter Appert forecasts "sharply improved margins" and faster earnings and revenue growth.
Adtalem stock, which peaked at $49 per share three years ago, has rebounded after bottoming at $16 in mid-2016. Trump administration promises to pare industry regulations have helped fuel the comeback. The stock was up 8.5 percent this afternoon to $44 a share.
On a conference call last month with analysts, CEO Lisa Wardell said "there's no silver bullet" for shrinking DeVry University. "That's why we made management changes and significant bold moves as it relates to our marketing spend, reallocation to digital, as well as some other programming that we talked about for some time."
Founded in 1931 as DeForest Training School in Chicago, DeVry Technical Institute focused on film projector, radio and then TV repair; it was acquired by Bell & Howell in 1967.
Two DeVry teachers in 1973 started Keller, which acquired DeVry from Bell & Howell in 1987. DeVry went public in 1991.
Cogswell, in San Jose, dates to 1888 and is controlled by private equity, according to a spokeswoman. Programs include computer science and game design and development.