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Readier for Prime Time?

June 26, 2008

The news made jaws drop in front of Bloomberg terminals around Wall Street and generated a whole lot of chatter among the analysts, investors and college officials gathered in Las Vegas for this week's Career College Association annual meeting. Why in blazes would the president of the Apollo Group, the $8 billion behemoth of for-profit higher education and owner of the University of Phoenix franchise, give up his perch to bolt across town to lead Grand Canyon University, a fast-growing but comparatively tiny and unproven institution?

On paper, it looks like a huge coup for the little guy and a huge loss for the 800-pound gorilla. But is it?

Brian Mueller's move from Apollo to Grand Canyon, in which he will be joined by two other Apollo group executives, probably says more about the situations at the two companies than it does about the general state of the for-profit higher education market. But even so, given the prominence of Apollo/Phoenix and the curiosity with which many view Grand Canyon -- which has been transformed in just four years from a barely breathing nonprofit Christian institution into the likeliest next candidate to be a publicly traded college company -- there is likely to be widespread interest among those who follow the sector about what's behind the move and its likely impact.

The parties themselves had relatively little to say about situation. Apollo announced Mueller's departure early Wednesday morning in a news release that did not say where he was going. Grand Canyon was only slightly more effusive in its short news release, but for different reasons: It is in the "quiet period" that historically limits what officials of a company can say in the time between when a company has filed a registration statement expressing its plans to sell stock to the public (which Grand Canyon did last month) and when the SEC approves that plan.

As a result, Grand Canyon's public statements were of the muted sort that one finds in formal statements. "We continually seek the best possible senior executives in order to improve our program offerings and provide the best educational experience for our students,” Brent Richardson, who has been the company's chief executive officer, said in the news release introducing his replacement. (Richardson will become the company's executive chairman of the board.) “We are delighted that Brian is joining our leadership team with his wealth of experience in higher education and success while running the University of Phoenix.”

“I’m excited about the opportunity to join this dynamic management team and be part of a traditional university that will serve as a model for the future,” Mueller himself said. “It is a university that was founded on strong ethics and values and I look forward to helping build on their success.”

Privately, though, Grand Canyon execs were almost certainly exulting over what seemed, at face value at least, to be a coup. Snagging the president of the country's largest higher education company -- and perhaps more importantly, the man widely seen as the architect of the University of Phoenix Online, which over the last 20 years has helped propel Apollo's overall growth -- would seem like a stunningly positive development for a relative startup planning to maneuver into the world of public finance. "Brian Mueller is the leader of [Apollo's] revolution for us all," said Michael Clifford, a California businessman who played a significant early role in Grand Canyon's transformation to for-profit status, and helped broker the arrangement between the university and Mueller.

"He certainly has a great resumé for Grand Canyon to be sure," said Trace Urdan, an analyst who follows Apollo Group for Signal Hill, a Baltimore investment firm.

"When Apollo Group had separate online and campus infrastructures," added Gary E. Bisbee, senior vice president for Lehman Brothers Equity Research, "Brian ran the online business, and he certainly ran it during some of its best years."

But Urdan, Bisbee and other analysts who follow the for-profit market offered a more nuanced portrait of the pros and cons of the crosstown move by Mueller and two colleagues, Stan Meyer, executive vice president of marketing and enrollment for Apollo, and Dan Bachus, former chief accounting officer at Apollo.

While analysts generally agreed that the leaders from Apollo would bring additional expertise in building online programs and a steeper level of familiarity with how publicly traded companies operate to Grand Canyon's management team, they noted that the Apollo executives are used to operating in a very different sort of environment from what they will encounter at Grand Canyon, which is a fraction of Apollo's size and has an even smaller fraction of its resources.

"Though he has been doing online for a long time, and has grown online [programs] at the University of Phoenix, it is going to be very different kind of job at GCU," Urdan said. "Even if you go back to the very early days [at Apollo], he was operating with a greater scale, a more branded institution that had already been in business for 20 years. I'm not saying he can't do the job, but in terms of what they're getting, it may not be an exact fit."

As for Apollo, the analysts generally agreed that while the departure of Mueller may represent a short-term loss for the company -- and investors seemed to view it that way, with the company's stock price falling by $3.78, or about 7 percent, in the wake of Wednesday's announcement -- Apollo may ultimately benefit from the change in leadership.

Mueller had served as president for two years but had never been given the additional title (which he sought) of chief executive officer. Despite the expected kind words Wednesday from Apollo's founder and chairman, John G. Sperling -- “We are thankful for Brian’s many years of service to the company and for the instrumental role he has played in our success" -- the withholding of full control suggested an ultimate lack of confidence in him, and that was widely seen as instrumental in Mueller looking elsewhere.

The divided management structure has also not been good for Apollo, Bisbee asserts. "In the absence of a strong CEO and a strong reporting structure, I think it's been natural that there have been competing interests or a lack of unified vision," he said. The Apollo board's decision to aggressively search for a new CEO, which it formally revealed in its news release about Mueller's departure, means that despite the short-term pain of his leaving, "this actually ends up being a positive for Apollo."

Grand Canyon, which has grown from about 700 students five years ago to more than 15,000 (most of them online) now, is awaiting word from the Securities and Exchange Commission on its bid to go public. Assuming it earns that approval, it would then seek investors and could sell stock by some time late this summer or early fall. Its public offering was initially estimated to be worth $230 million.

 

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