UA System Board rejects resolution to acquire University of Phoenix (Updated)

Editor’s note: This story has been updated with changes and additions throughout.

A vote held Monday (April 24) that one University of Arkansas System Board Trustee said was nothing more than an “advisory vote,” went against a resolution supporting a deal that would indirectly connect the University of Arkansas System with the University of Phoenix (UofP).

Transformative Education Systems (TES), an organization loosely but not legally affiliated with the UA System, was incorporated to raise the financing to acquire the UofP and enter into licensing and affiliation agreements with the UA System. Arkansas law does not allow the UA System to directly acquire the UofP, according to Patrick Hollingsworth, UA System interim general counsel.

TES has UA System representation, but most of its officers are independent. The three TES board members are UA System Trustee Ed Fryar, former Trustee Ben Hyneman, and Gina Terry, former chief financial officer of the UA System.

UA System President Donald Bobbitt has negotiated behind the scenes for at least two years to pursue the deal that would affiliate the system with the UofP, which is primarily an online for-profit university with more than 83,000 students. The UA System, of which the flagship campus is the University of Arkansas at Fayetteville, enrolls more than 70,000 students, employs over 28,000 and has a total budget of over $4 billion.

According to UA System attorneys, Bobbitt has the authority to pursue the deal with TES even without UA System Board approval. The one-page resolution included a note that “TES is actively negotiating a potential acquisition of the University of Phoenix (UoP) with the intent to begin a mutually beneficial collaboration with the UA System as TES transitions UoP to nonprofit status;”

After more than 30 minutes of discussion, which followed almost three hours of discussion on April 19, the 10-member UA System Board voted 5-4, with one abstention, against supporting the resolution.

Voting against the resolution were Board Chair Morril Harriman, and Trustees Tommy Boyer, Steve Cox, Kevin Crass, and Sheffield Nelson. Voting for the resolution were Trustees Ted Dickey, Fryar, Nate Todd and Jeremy Wilson. Trustee Kelly Eichler abstained.

During the brief discussion prior to Monday’s vote, Fryar attempted to equate the Phoenix deal with the move 50 years ago that saw Fred Smith move FedEx to Memphis because Little Rock would not extend its runway. He said the University of Arkansas System has the chance to not repeat that mistake.

“To me, this is a FedEx moment,” Fryar said.

Fryar also said the UofP has about $30 million a year in “unrestricted cash flow,” and some of that could be available to the UA System through TES.

Nate Todd said the deal represents an opportunity for a strategic partnership and gives the UA System a chance to more aggressively engage in the online “space” within higher education. He said online course education is a “transformational change that is happening in America,” and the UA system will be in a “less than optimal” position if it does not partner with the UofP through TES.

“This space is critical, in my assessment, to learning and the change in the environment where learning is taking place,” Todd said.

Harriman said he respected all the time and effort put into the effort but expressed frustration that the UA System Board has no control over the decision.

“Basically the Trustees of the University of Arkansas have no control and no governance responsibility or authorization within the contemplated transactions here. That concerns me. I realize that can’t be changed. That’s what happens when we attempt to do indirectly what we are not able to do in a direct manner,” Harriman said.

Crass, a senior partner with Little Rock law firm Friday, Eldridge & Clark, said he focused on the legal structure and could not see how it benefits the UA System or provides the UA the ability to “walk away” if the deal goes bad.

“It’s the structure that gives me pause,” Crass said, adding that trustees are being asked “to take a leap of faith,” which is not the normal business strategy in the private sector. As did Harriman, Crass also noted that Monday’s vote was nothing more than “an advisory vote.”

Sheffield Nelson was more direct in his opposition. He said he has heard from many people in and out of higher education that the deal “is a mess” and they should not partner with the UofP.

“I feel like it’s a dog we should walk away from,” he said.

UA System Director of Communications Nate Hinkel sent Talk Business & Politics this statement following the vote: “Dr. Bobbitt has previously said it would be difficult to move forward without support from the Board on this potential affiliation. That statement remains true, and he is certainly disappointed in the outcome of this meeting.”