AIMCo objects to bid price

Transaction for Apollo Education shares debated

Alberta Investment Management Corp. has spoken out against the bid for Apollo Education Group, saying the U.S. company should be valued at almost three times the $1.1 billion being offered by a group of private-equity firms.

The Alberta pension fund, Apollo’s sixth-largest shareholder, sees fair value in the “high $20 range,” fund manager David Tiley said by phone. That compares with the offer of $9.50 a share on which investors are due to vote on Thursday.

“Some shareholders maintain a different tolerance for downside risk to that of the other investors,” Apollo Education director Robert S. Murley said in a statement. “Were the transaction to be voted down, Apollo Education Group could face serious consequences, including a further decline in the share price that could have an impact on the company’s access to liquidity.”

Apollo Education had more than $2.9 billion erased from its market value in 2015 amid an industry scandal that uncovered examples of high tuition and paltry results among for-profit schools.

The company, which is also being scrutinized by U.S. regulators for possible unfair advertising and marketing, has said the challenges have continued into 2016.

AIMCo’s Tiley joins Londonbased Schroders and Los Angeles-based First Pacific Advisors in speaking out against the deal on valuation grounds.

Together they own more than 26 per cent of the Class A shares. Corporate-governance adviser Institutional Shareholder Services Inc. also told investors to reject the offer, saying a stand-alone company is “more compelling than its risks.”

“They have decided to sell effectively at the bottom,” said Tiley, who helps oversee more than $90 billion of the pension fund’s assets. “We have layered into the position realizing that it’s an industry that is out of favour.

“Our long-term view is that this space will return to secular growth.”

Both Tiley and Schroders’ Andrew Lyddon have expressed concern over the board’s decision to spend $108 million on the acquisition of an education company in Germany in October, before accepting an offer a few months later from private-equity firms, including Apollo Global Management.

Apollo Education chief executive Greg Cappelli, who fund managers say stands to earn about $7.3 million in cash and shares from the transaction, has insisted the board ran a “robust process” over the past 12 months and had looked at strategic alternatives before accepting the offer.

His views have been also been backed by investor proxy advisers Glass Lewis & Co. and Egan-Jones Ratings Co., which have both recommended shareholders accept the offer, citing the challenging operating and regulatory environment.

“Shareholders’ votes should be based not only on the adequacy of what they are receiving, but also the potential risks they avoid by accepting this offer,” Apollo Education’s Murley said.

Apollo Education has climbed about 4.6 per cent in New York trading since the deal was announced.

Were the transaction to be voted down, Apollo Education Group could face serious consequences.