UA System Trustees debate merits of University of Phoenix acquisition

The University of Arkansas System Board of Trustees on Wednesday (April 19) heard almost three hours of discussion about ongoing efforts to buy the University of Phoenix (UofP). The meeting included a surprise that trustee approval is optional for what could be a more than $500 million deal.

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/or 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.

Wednesday’s discussion was the first time the trustees and the public heard more detailed information following reports that UA System President Donald Bobbitt had been working 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.

Marshall McKissack, managing director of mergers and acquisitions with Little Rock-based Stephens Inc., said Stephens “built an extensive and fairly conservative financial model” and tested it against various growth patterns. The modeling showed that a connection with the UofP through TES would produce cash reserves for future investment and growth and provide “significant financial flexibility” for the UA system after the debt is repaid or refinanced.

While some published reports put the deal to buy the UofP as high as $700 million, McKissack said when questioned by trustees that the agreement might be closer to around $535 million based on similar deals to acquire for-profit universities.

Matt Waller, dean of the Sam M. Walton College of Business at the University of Arkansas, presented his analysis of the academic benefit via Zoom. Waller said a UofP affiliation would provide numerous benefits, including developing and implementing online programs quickly and cost-effectively, collecting and better using data on competencies desired by employers, and having access to advanced capabilities to better connect with adult learners and help adults better connect with the working world.

Michael Moore, UA System vice president for academic affairs, said the deal has many benefits to the UA System, with a significant benefit being that it will help survive an “enrollment cliff” expected to be fully realized by 2025. Moore argued that university “face-to-face” enrollment could decline by 15%. He said the online, adult-learning capacity offered by the UofP would continue to provide revenue when the traditional student enrollment declines.

Julie Miceli, an attorney with the Chicago-based Hush Blackwell law firm who is working with TES on negotiating a deal with UofP, said the agreement would be “far different” than other acquisitions of a for-profit university by a public university because there would not be a revenue sharing agreement and there will be a separation in terms of risks and liabilities for the UA System. She said the “next steps” in the process are to draft an asset purchase agreement and financing options and work with the federal Department of Education for “appropriate approvals.” Hollingsworth explained that Bobbitt, as president of the UA System, has the authority to engage in licensing and affiliation agreements with TES and, indirectly, the UofP.

Following trustee questions, Micelli said an application deadline of May 2 for such approvals had created urgency for the trustees to act on a resolution supporting the TES acquisition of UofP. Micelli acknowledged that trustee approval is not necessary but would be “an influential statement” in the effort by TES to acquire UoP and gain approvals from the Higher Learning Commission and the U.S. Department of Education.

Several trustees advocated approving the resolution supporting the TES pursuit to acquire UofP.

Trustee Secretary Kelly Eichler said the UA System must enter online education, and UoP is “a lifeline to us.” She said people should consider the option “with an open mind” and think beyond detractors. Trustee Ted Dickey compared the possibility to Netflix, which years ago disrupted its own business, and remains relevant, whereas its former competitors like Blockbuster are defunct or greatly diminished. Trustee Jeremy Wilson agreed with Dickey, saying the effort to use TES to acquire the UofP is “a well thought out approach … to continue to thrive in the next few decades” and will benefit the system and the smaller schools within the system. He said the deal allows the UA system to move away from primarily depending on tuition and public funding.

Trustee Ed Fryar spoke at length about why he believes the deal will benefit the UA System by diversifying education access and revenue streams. He said urgency is needed because at least two other university systems are interested in a deal to acquire the UofP.

But not all trustees are convinced. Board Chair Morril Harriman praised Bobbitt for looking for opportunities. Still, he said he is “completely torn” on the issue because he doesn’t see how it will benefit the system unless it becomes a system division. Trustee Sheffield Nelson noted that the UofP does not have a great reputation and wondered why other systems had not previously pursued buying the UofP.

“If this is such a good deal, why aren’t several people standing in line to buy this company?” Nelson asked during the open discussion.

Trustee Steve Cox expressed frustration about several board members being unaware of the effort until just a few weeks ago and now being forced to make a decision ahead of a May 2 deadline.

“I didn’t know we had a deadline before I came to this meeting,” Cox said, adding, “I need more time to digest this and consider this. So please, please, be patient and let us consider this because I hate to be rushed.”

After almost three hours of discussion, the trustees agreed to a Monday vote on a resolution supporting TES.