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Published in Print: April 5, 2000, as Business

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Sylvan Learning Shifts Its Focus Online

Sylvan Learning Systems Inc.

Headquarters: Baltimore
1991 Revenue: $338.5 million
52-Week Stock Range: $10.687 to $29.25
March 29 Closing Price: $15.937
Principal Businesses: Learning centers; contract educational services; online tutoring, adult education, and corporate training; a university in Spain

Sylvan Learning Systems Inc. has turned in its tests and now wants to go play on the Internet.

The Baltimore-based education company is taking a chunk of the huge sum it got from the recent sale of its computerized-testing business and investing it in a unit that will "incubate" Internet ventures. The new unit includes eSylvan, which is developing online versions of the tutoring and supplemental-learning services the company has offered for years at retail centers.

Sylvan executives say the unit will invest in and nurture World Wide Web-based education ventures and eventually spin them off.

"The incubator is a venture capital fund," Douglas L. Becker, Sylvan's chairman and chief executive officer, said in an interview. "As we see promising technologies, we can invest heavily to support them."

The Internet incubator is just one of several major developments in recent weeks at Sylvan, which is among the nation's largest for-profit educational-services companies. Sylvan has also shifted duties in its top management ranks and announced a plan to buy back almost 20 percent of its stock, the share price of which has been sagging lately.

"It was time to reinvent ourselves," Mr. Becker said. "It was time to embrace technology and the Internet more aggressively."

Testing Centers

Mr. Becker and Christopher Hoehn-Saric, who was the company's co-chief executive until taking the reins of the Internet venture, took over Sylvan in the early 1990s from KinderCare Learning Centers Inc., a debt-ridden child-care company. The pair transformed Sylvan into an educational-services giant, with interests in tutoring, testing, training, and overseas higher education.

Sylvan has long been the leader in private tutoring centers, with more than 750 franchised and corporate-owned sites in North America. But the co-chief executives, who never finished college themselves but made fortunes in a variety of business ventures, sought to expand Sylvan through acquisitions and the introduction of contract services with school districts.

Rather than seeking to manage schools for profit, Sylvan went to urban school systems and offered a version of its tried-and-true remedial program for which well-to-do suburban parents were paying hundreds of dollars for their children. Educators in more than 100 districts welcomed the company, often using federal Title I money to pay the bill.

Meanwhile, Sylvan realized that some of its retail sites could also double as testing centers. The company administered computerized versions of numerous professional-licensing exams and contracted with the Educational Testing Service for exams such as the Graduate Record Examinations, the Graduate Management Admission Test, and the Test of English as a Foreign Language.

Though it has been consistently profitable, Sylvan has had its ups and downs on Wall Street. Some analysts viewed the company's holdings as too diverse to present a consistent strategy.

"It had this fairly complicated mix of businesses," said Peter P. Appert, an analyst who follows the education industry for Deutsche Banc Alex. Brown in San Francisco.

Early this year, Sylvan announced the sale of its Prometric division, which includes all its computerized-testing business, to the Thomson Corp. for $775 million in cash. Sylvan netted $600 million after taxes and transaction costs.

The company plans to spend about $120 million of that sum on creating the Internet incubator, $100 million on expanding Sylvan's push into international higher education, and $166 million on buying back stock. The rest is being set aside to pay debt or to keep on hand for working capital.

Homework Help

Sylvan says it is investing a total of almost $300 million in cash and company assets in the Internet incubator. Those assets include eSylvan, the company's as-yet-unlaunched online business, and its investments in such concerns as Caliber Learning Network, an online education and training business, and ZapMe! Corp., which provides advertising-supported computers and Web connections to schools.

Apollo Management LP, a private investment firm, is investing another $100 million in the venture.

Mr. Hoehn-Saric said he had been spending most of his time handling the operations and sale of Prometric, so he is happy to step down as the co-CEO of Sylvan to run the incubator.

"Eventually, the incubator may have a role as a separate public company," he said.

One purpose of the incubator will be to focus Sylvan's Internet strategy. Other supplemental-education companies, such as Princeton Review Inc. and Kaplan Inc., have already launched Web versions of their test-preparation offerings and other products.

The challenge for eSylvan, Mr. Hoehn-Saric said, will be to expand the market without cannibalizing the company's learning centers. He believes that can be done.

By going online, the company will be able to offer a greater variety of services, such as homework help, he said.

"This is something that can reach a far greater number of kids," Mr. Hoehn-Saric said.

So far, Wall Street appears to embrace the company's new strategy.

"They are making themselves leaner and meaner," Mr. Appert said. "The success of Sylvan historically has been its ability to recognize new niches and create new business models."

Mr. Becker, the chairman and CEO, said he welcomes the competition of the growing for-profit education industry.

"When we entered this arena, there was a real question as to whether private-sector companies could succeed in education," he said. "It has felt sort of vindicating to have others come into the education arena and have some success."

Vol. 19, Issue 30, Page 8

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