Education

Edison: More Schools in Fall, Investors in Wings

By Mark Walsh — May 29, 2002 3 min read
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Executives of Edison Schools Inc. said last week that they were in serious discussions with at least five potential investors to provide the $30 million to $50 million the company needs to take control of schools in Philadelphia and elsewhere in the fall.

The New York City-based school management company has faced one setback after another in recent weeks, including a sharply declining stock price and the disclosure of a federal Securities and Exchange Commission inquiry into its books. (“Edison Reels Amid Flurry of Bad News,” May 22, 2002.) But last week, the company sought to promote confidence by announcing expansion plans for next fall, and by discussing what officials said was increased interest in the company by potential capital investors.

“We’re now engaged in discussions with five investors in a serious way,” Christopher Whittle, Edison’s president and chief executive officer, said during a May 23 news conference that was also aired on the World Wide Web.

The company says it needs as much as $50 million for expansion this coming fall, much of it for the 20 Philadelphia schools Edison is slated to manage. Edison announced last week that it would take over a public school in Indianapolis and open a new charter school in Kansas City, Mo., in the fall. It will also expand operations at 12 of its current sites by, for example, adding a grade or two.

Edison manages 133 schools serving 74,000 students this school year. Next year, it expects to add 14,000 students in the 20 Philadelphia schools and about 2,750 in the expanded sites and the two new schools. But it will lose about 5,000 students from contracts not being renewed, leaving a net gain next year of just under 12,000 students.

Edison had raised expectations on Wall Street that it could be awarded as many as 45 schools in Philadelphia, and the recent announcement of the smaller number precipitated the steep dive in the company’s stock price. The stock closed at $1.39 on May 23 after trading as low as $1.18 last week. Its 52-week high is $28 and it traded around $21 a share in January.

Mr. Whittle took pains last week to suggest that the company needs new capital to expand every fall, and that there seemed to be plenty of interest among big investors in giving Edison what it needs this year. However, while he would not disclose who the potential investors are, Mr. Whittle acknowledged that this round of investment would come at a price to the company and its stockholders. New loan debt would be at steep interest rates, he said, and new equity investment would dilute the value of current shares.

“Do we need the financing to open new schools? Yes,” Mr. Whittle said. “We are highly confident we will get it done. But will it be costly? Yes.”

Philadelphia Story

In another development, there was renewed discussion last week that Edison might win further business in Philadelphia.

The Philadelphia Inquirer reported the details of a memo from Mr. Whittle to one of Edison’s key supporters on the five-member School Reform Commission, the state- and city- appointed panel that now controls Philadelphia’s public schools. The memo outlines a plan for the company to install its educational program in an additional 19 schools.

Under the plan, Edison would not have the same control over those 19 “reconstituted” schools as over the 20 it will manage outright. Instead, the company would install its curriculum and school design and would receive per-pupil fees from the reform commission.

It was uncertain late last week whether there was enough support on the commission for giving Edison the extra 19 schools. Mr. Whittle said the company would be willing to take on the additional business, although such a move could push its capital requirements for next year as high as $60 million.

A version of this article appeared in the May 29, 2002 edition of Education Week as Edison: More Schools in Fall, Investors in Wings

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