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Published in Print: June 13, 2001, as 'Free Market' in Pa. District Wanes As Edison Buys Rival Company

'Free Market' in Pa. District Wanes As Edison Buys Rival Company

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With three different companies running its 10 schools, the Chester-Upland district was supposed to be Pennsylvania's one-of-a-kind laboratory for free-market competition in education.

But with the surprise merger of two of those companies last week, it's unclear where that vision stands.

Edison Schools Inc., the nation's largest for-profit operator of public schools, announced June 4 that it had acquired LearnNow, a relatively new school management firm with a niche in urban schools, for about $34 million in Edison shares.

In March, the three-member state control board that runs the long-troubled Chester-Upland schools divided responsibility for running nine of the schools between Edison and LearnNow, while turning over an elementary school to Mosaica Education Inc. All three companies are based in New York City. ("In Pa., District Tries 3-Way Contest To Fix Schools," April 4, 2001.)

In rejecting Edison's bid to run all the schools, the control board said it wanted competition, not a monopoly, in the 7,000-student district. The merger, however, gives Edison control over nine of the district's 10 schools.

Thomas E. Persing, the president of the control board, said last week that the merger was a surprise and a disappointment. But the board will ensure that Edison and LearnNow offer competing programs, he added.

"We'll keep them to their word," said Mr. Persing, who is the superintendent of the nearby 3,300-student North Dublin schools. "Even though there's an acquisition, they will run two programs."

In a conference call last week with analysts and investors, Christopher Whittle, the president and chief executive officer of Edison, pledged there would be distinct Edison and LearnNow schools.

"We'll be operating both types of schools. That's what Chester wants, and both companies have assured them that we plan to deliver exactly on the promise we made," he said. "We'll be competitive there in many ways, like multiple brands in many organizations are."

Opportunity for Options

The merger also leaves Edison, which runs 113 public schools in 21 states, in a better position down the road to offer multiple options to school districts, Mr. Whittle said.

LearnNow, which expects to manage 11 schools in four states this coming fall, brought a strong management team, as well as an aggressive growth outlook to the deal, he added.

LearnNow has a reputation for gaining community involvement in its schools. To get local leaders to back its plan to run schools in Chester-Upland, for example, the company recruited popular former teachers and administrators who had left the community to return to work in the schools in the fall. The district is about 20 miles south of Philadelphia.

"There are those in the community who are not crazy about this, but are willing to wait and see," Eugene V. Wade Jr., LearnNow's chairman and chief executive officer, said of the merger with Edison. Under the deal, he will become an Edison vice president. "If we deliver a good education to their children, then no one's going to care."

The deal also should help LearnNow lower the costs of running schools in Chester because it can share purchasing and other administrative expenses with its new parent company, he added. Edison will lend LearnNow up to $4 million for operations before the deal's closing, which is expected by July 1.

Michael J. Connelly, the president and CEO of Mosaica, said that the move was a good business decision for both companies, though he acknowledged that it will raise community concerns.

At the same time, he said, the deal makes Mosaica—which runs 20 schools in five states—the most independent operator of the three management companies in Chester-Upland. "Hopefully, we'll be the nimble, entrepreneurial school," Mr. Connelly said, "and create options for parents."

Vol. 20, Issue 40, Page 6

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