Change in Ownership?

Apollo Education Group shareholders are voting today on whether or not to sell the company to a consortium of private investors. Their decision could determine whether the University of Phoenix remains under the Apollo brand or if it is sold without its parent company.

On Tuesday, the company recommended in a filing with the U.S. Securities and Exchange Commission that investors should vote yes on selling Apollo for $1.1 billion to three investment firms: Apollo Global Management (which is not related to Apollo Education), the Vistria Group and Najafi Companies.

"The board believes that the current transaction is in the best interests of shareholders. If the company's shareholders decide not to approve this transaction, the company could face serious consequences, including a further decline in share price that could have an impact on the company's access to liquidity. For that reason, if this transaction is not completed, the board intends to review other strategic alternatives for the company, including a sale of the University of Phoenix," said the Apollo Education letter.

Selling Phoenix would not require the same level of approval from shareholders, according to the company.

The acquisition deal would pay shareholders $9.50 a share. But for months now there has been resistance on the part of some investors. Apollo's two largest shareholders, Schroders and First Pacific Advisors, believe the stock is worth more than $9.50, according to Bloomberg. As of Wednesday, the stock finished trading at $7.43.

In a letter to Apollo in January, Schroders' global value team wrote, "We see the potential for multiple hundreds of percent of upside in Apollo's stock from current levels over a period of years … We therefore urge the board to reject any proposals that would deny shareholders the opportunity of benefiting from this significant recovery potential."

Even if the sale goes through, Apollo Education still needs regulatory approval, which the company is in the process of seeking from both the U.S. Department of Education and its accreditor -- the Higher Learning Commission. The company also may need some approval from programmatic accreditors.

If shareholders approve of the sale, Tony Miller, the chief operating officer and a partner of the Vistria Group, who is a former deputy secretary for the department under the Obama administration, will become chairman of the Apollo board.

"Tony's former position has the big plus for the company in him having contacts at the department and knowing how things work," said Robert Shireman, a former department official himself who is now a senior fellow at the Century Foundation. "But there's also the problem of people like me pointing those things out and putting the Department of Education in a position of being extra cautious and careful. It definitely complicates things, but companies think overall it's a positive for them."

The department will evaluate HLC's actions and look at the financial health of the new ownership group to determine that they can take on the company, said David Bergeron, a senior fellow for postsecondary education at the Center for American Progress and a former department official.

However, Bergeron said, it's difficult to see a conflict between the department and Miller's involvement in the transaction, because restrictions of former federal officials are both "narrow and exist only after a period of time."

If the shareholders vote against the acquisition, the company warned it could seek other alternatives, including selling Phoenix separately. Apollo also owns Western International University, the College for Financial Planning and Apollo Global, but Phoenix is its largest holding.

"Given the company's declining performance and limited visibility and that cash flow is expected to continue to decline in fiscal year 2016, the board appreciates that the proceeds of any sale of the University of Phoenix may be limited. However, the board believes that selling the University of Phoenix may still be an appropriate step to mitigate downside risk inherent to the status quo operation of the University of Phoenix, which may negatively impact the value of the University of Phoenix and the value of Global," the company said.

Last year, an Inside Higher Ed analysis of federal records determined that Phoenix received more than $1.7 billion in federal student loans and grants -- the most of any college. Apollo has been the largest for-profit education provider in the country, but revenues and enrollment numbers have been on the decline. At its peak in 2010, Apollo had 475,000 degree-seeking students and about $4.9 billion in annual revenue. Today, enrollment has fallen to under 200,000 students and revenue is down to about $800 million. Earlier this month, Phoenix laid off nearly 500 employees.

Shireman said if the shareholders approve the acquisition, plenty of people will be watching to see just how this new group of investors will fare in offering a good value to students while also making a profit.

"The hazard to taxpayers and consumers is that the new owners of University of Phoenix will increase the perceived value through hype and marketing and seek to sell at a high price, but then it will turn out it's not real, like we have found in so many cases in for-profit colleges," he said. "People will be watching whether the University of Phoenix can do what others have failed to accomplish. For-profit colleges have had so much trouble because they've tended to focus on getting so many new students and trying to convince people it's a great university instead of making it a great university … it has to actually become a university for the long term."