- The Washington Times - Tuesday, April 29, 2003

The share price of Sylvan Learning Systems Inc. has risen in the past several weeks as investors reward the company for focusing on higher education and leaving the secondary-education market.
   The Baltimore company announced last month that it would pull out of its flagship Sylvan Learning Centers business, which tutored students in kindergarten through 12th grade. The company was founded in 1979 with the learning centers as its main business.
   It is disbanding Sylvan Ventures, its venture-capital arm, and selling Educate Operating Co., its business units focusing on kindergarten through 12th grade, to Apollo Management LP, a Los Angeles private equity firm.
   The transaction, valued at $275 million to $300 million, is expected to close by mid-June.
   Sylvan’s stock closed yesterday on the Nasdaq Composite Index at $17.65, up 14 cents from Friday’s close of $17.51.
   Although the company grappled with the decision, Chief Financial Officer Sean Creamer said it was necessary to focus on the stronger higher-education business and streamline the company’s offerings.
   “Sylvan has been a well-known brand name of education services in this awkward position between two solid peer groups without having a real focus,” Mr. Creamer said.
   The company chose to develop its higher-education companies because of the higher rate of return on investment and faster revenue growth, Mr. Creamer added.
   Jeff Silber, a research analyst for Gerard Klauer Mattison, a New York investment brokerage firm, said he was surprised by the company’s decision to part with its flagship business.
   “But it makes more sense because the post-secondary industry looks a lot brighter than the domestic K-12 education market,” said Mr. Silber, whose firm does not own any Sylvan stock.
   Sylvan plans to concentrate on expanding its campus-based Sylvan International Universities Inc. and increase offerings of its online higher education courses at Walden University, National Technological University and Canter & Associates.
   The move to focus on higher education reduces investor confusion, said Richard Close, vice president of SunTrust Robinson Humphrey, a division of SunTrust Capital Markets that does not own Sylvan stock.
   “By the third quarter, the company should be cleaned up and a lot easier to understand, which will benefit investors,” said Mr. Close, who rated the company “overweight,” or exceeding the average return in the industry.
   Mr. Creamer said most of the revenue growth in the first quarter ended March 31 came from increased enrollment in online courses and new campus openings at Sylvan’s Universidad de las Americas in Santiago, Chile.
   Enrollment at the Chilean university grew 35 percent. Meanwhile, 15,965 students registered for online courses, primarily in teaching, up 20 percent from 13,268 students a year ago.
   Sylvan plans to add online nursing and management courses in the next year.
   First-quarter revenue rose 27 percent to $108.7 million from $84.9 million a year earlier. The company reduced its losses to $16 million (39 cents per share) from $79.1 million ($2.01) a year earlier.
   Most of the loss was caused by $25 million in charges to sell the K-12 business units, which were to continue into the second quarter, Mr. Creamer said. The company projected 2003 revenue would hit $450 million to $475 million.
   “The post-secondary market is very solid, and we’re in a poised position to emerge with profits once we get past this transaction,” Mr. Creamer said.
   Mr. Silber, who rated the stock as neutral, or in line with the market, said the company might not be profitable until the third quarter or beginning of 2004.
   “Sylvan’s cleanup is going to take time before it begins to show effective results and investors are comfortable with the change,” he said.

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