Edison Likely to Become A Private Company Once Again

By Mark Walsh — August 06, 2003 2 min read

Edison Schools Inc.'s experiment as a publicly traded school management company may soon come to an end.

Christopher Whittle, its founder and chief executive officer, is leading a management team that plans to take the company private in a $174 million deal. An affiliate of Liberty Partners, a private equity firm in New York City, is joining the buyout effort, which would result in the company’s shares being removed from the Nasdaq stock market.

Edison was founded in 1991 and began selling its stock to the public in 1999 at $18 a share. The price of a share reached a high of $38.75 in 2001. But a lack of profits, and continuing controversies over Edison’s effectiveness and the very concept of privately managed public schools, brought the price to under $1 a share last year. (“Edison Reels Amid Flurry of Bad News,” May 22, 2002.)

Before the company announced in May that it was seeking to again be privately held, Edison shares traded at $1.27. The buyout offer, which was approved by Edison’s board of directors and announced July 14, calls for the buyout group to assume about $70 million in company debt and pay $1.76 per share for Edison’s 53.1 million outstanding shares.

Shareholders still must approve the deal. Some analysts and outside stakeholders have grumbled publicly that the buyout price is too low, especially considering that the company says it is on target to report its first profitable quarter.

“It may, in fact, be better for Edison to be private, but shareholders deserve a fair price, and I don’t think this is a fair price,” said Trace Urdan, a San Francisco-based analyst who follows the company for the investment firm ThinkEquity Partners.

A Sweeter Deal?

If Edison Schools indeed reports the positive earnings news it has projected for the fiscal year that ended June 30, Mr. Urdan said the company’s shares would merit a share price of around $4.50 by next year. Unhappy shareholders, especially those who bought at $30 or more per share, could force the buyout partnership to sweeten the deal, he said in a research note.

A hostile bid, perhaps led by another school management company such as Chancellor Beacon Academies Inc., could be a possibility, although a remote one, Mr. Urdan said.

Adam Tucker, a spokesman for New York City-based Edison, discounted the possibility of shareholder disapproval of the buyout offer.

“The price came from a special committee of board members and was deemed fair by an outside review,” he said. “We absolutely believe that price is fair.”

Mr. Tucker said that the management buyout should have no effect on Edison’s operations in the new school year. The company expects a slight net decrease in the coming academic year from the 80,000 students in Edison-managed schools last year. Edison says it ended some contracts that were unprofitable, but in some communities it was essentially fired as a manager.