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Published in Print: September 24, 2003, as Merger Planned for Plato Learning, Lightspan

Merger Planned for Plato Learning, Lightspan

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Plato Learning Inc. and Lightspan Inc., two companies that are well known in schools as vendors of instructional software that supplements, or in some cases delivers, schools' regular academic programs, have announced plans to merge.

Some industry analysts estimated that the merger, which still must be approved by federal regulators and shareholders of both companies, would cost Plato Learning about $380 million. Plato Learning would fold Lightspan into its operation and keep its headquarters in Bloomington, Minn.

Both companies have struggled in recent years to keep up with technological advances, shifts in the preferences of educators, and trends in school reform and the federal and state regulation of education, some analysts say.

One aim of the proposed merger is to combine both companies' product lines to cover more of the curriculum, across nearly all elementary and secondary grades, said Greg Melsen, Plato Learning's chief financial officer, in an interview.

Lightspan's educational software targets the elementary grades, notably the early elementary grades.

Plato Learning, which says it has 4,000 hours of educational content, delivered by CD-ROM and over the Internet, has historically focused on the middle and high school levels. The company says its customers include about 1,100 elementary schools and 8,200 secondary schools.

Its software is also used for academic remediation for students entering college, and for prison inmates. In addition, the company operates technology-based learning centers for the U.S. Navy.

A second goal is to combine the the two companies' sales forces, Mr. Melsen said, a common business strategy to lower costs.

The resulting company could win new customers by bundling products from both companies together or tailoring packages to suit different needs in the school market, some analysts said.

Something else about Lightspan also caught Plato Learning's eye, Mr. Melsen said: the San-Diego-based company's computer-based assessment system, eduTest, a product that has been adopted in hundreds of school districts.

Though Plato Learning has partnered with New York City-based Princeton Review to offer online assessments, eduTest would give the company greater capability at a time when school districts are scrambling for better ways to assess students' abilities under pressure from federal and state governments.

"Accountability and assessment systems are becoming more crucial to the compliance with and success of the No Child Left Behind legislation," said John Murray, Plato Learning's president and chief executive officer, in the company's Sept. 9 announcement of the merger proposal.

Matt Stein, the lead K-12 analyst at Eduventures, a Boston-based firm that studies the education market, said Lightspan has "lost a fairly significant amount of revenue over the past two years," but that eduTest is "a gem within their company."

He added that due to the federal education law, "the testing market in K-12 education is one of the fastest-growing parts of the market right now."

Marketing a Challenge

Mr. Stein agreed that the combined companies could find synergies in their product offerings and efficiencies in their sales costs. But he said that in the short run, anyway, school districts could have trouble affording more computer-based academic content because they are spending their technology budgets on higher-priority items, such as data-management systems.

Mr. Stein added that the merger could be viewed as a defensive move by Plato Learning, which analysts have considered to be vulnerable to a takeover by such competitors as London-based educational publisher Pearson PLC.

The merger proposal, he said, "gives Plato a bit of breathing room—Pearson would not really want to invest right now."

Vol. 23, Issue 4, Page 5

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