Sell-Off at Career Education

Higher ed company seeks to shed 13 campuses, most of which lose money and/or draw scrutiny.
November 16, 2006

The Career Education Corp. has had a brutal year of regulatory scrutiny, management turmoil and tanking stock prices. Wednesday, the for-profit provider of higher education took the latest step toward regaining its footing by announcing plans to sell 13 campuses that have underperformed financially and/or been beset by problems.

"As Career Education positions itself for the future, we will be better targeting our business strategy and concentrating our resources on those areas where we have the greatest competitive advantage, the highest levels of expertise, and proven success," Bob Dowdell, Career Education's interim president and chief executive officer, said in describing what the company called "strategic divestitures."

The 13 campuses that Career Education said it would try to sell -- which include 9 that operate in the Northeast as either Katherine Gibbs School or Gibbs College, two Brooks College campuses in California, Lehigh Valley College, in Pennsylvania, and McIntosh College, in New Hampshire -- combined to lose $30 million in the first nine months of this year, while Career Education had an overall profit of about $26 million. "Those colleges were a huge drag" on the company, said Jeffrey M. Silber, a financial analyst who tracks postsecondary education for BMO Halyard.

"I don't want to call it a fire sale, but these were schools that were losing money or were having other issues," Silber said. "They're trying to clean up their act."

Besides their financial problems, several of the campuses have faced scrutiny from either government regulators or investigative reporters. The Katharine Gibbs colleges, one-time secretarial schools that trained generations of young (mostly) women in the Northeast and have struggled to stay relevant, were among the Career Education institutions featured in a highly critical "60 Minutes" report last year. Lehigh Valley has been investigated by the Pennsylvania attorney general. (Career Education announced this week that the campus faced fines for possible violations of the state's consumer protection laws.)

Those issues could make the campuses a challenge to sell, as company officials might need to indemnify a new owner against possible government findings of wrongdoing at some of the institutions. Career Education officials said they expected the campuses to be sold within 12 months.

Career Education's stock rose to $26, a one-day increase of nearly 8 percent, on the company's announcement.


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