State Board greenlights U of I’s $550 million University of Phoenix purchase

BOISE (IdahoEdNews.org) — The State Board of Education has endorsed the University of Idaho’s $550 million plan to purchase the University of Phoenix, a for-profit online behemoth serving some 85,000 students.

Voting unanimously, the State Board endorsed a resolution that would allow the U of I to set up a nonprofit to take over the University of Phoenix’s operations, dubbed NewU Inc. The resolution also gives the go-ahead on a financing plan for the purchase, which the U of I hopes to complete by early 2024.

Thursday’s State Board vote represents an early milestone in a complicated and costly process, one that came to light barely 24 hours earlier.

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NewU would finance the purchase through $685 million in bonds — a figure roughly equivalent to next year’s budget for the state’s higher education system. The University of Phoenix, meanwhile, has pledged to transfer $200 million to NewU, giving the nonprofit an infusion of cash and effectively knocking down the $550 million purchase price.

While taxpayers would not be on hook to bankroll the bonds, the purchase carries some risk, and potential reward, for the U of I.

The university says it will guarantee up to $10 million a year to backstop the purchase, if NewU is unable to make its annual payments. But the U of I also says the deal could bring in $10 million in initial “supplemental education funding” for the university, an amount that the university expects to see grow over time.

After two months, a fast-moving process goes public

The U of I has been moving rapidly to position for the purchase. But until Thursday’s State Board meeting, all of the activity had taken place behind the scenes.

The U of I said it was first approached by the University of Phoenix in March. University and State Board members have discussed the transaction in three closed-door meetings since March, board staff said in a memo released Wednesday. The most recent closed-door executive session was held Monday.

Thursday marked the State Board’s first public discussion of the purchase.

On Wednesday, after the State Board posted the agenda for Thursday’s meeting, news of the possible purchase traveled quickly. And in a “frequently asked questions” webpage, the university said the University of Phoenix insisted on secrecy.

“Because of the sensitive nature of such a transaction, a very limited number of members of U of I leadership, supported by outside advisors who specialize in the nuances of such acquisitions, worked on the transaction pursuant to a seller-required non-disclosure agreement,” the university said.

And the clock is ticking, the U of I said Wednesday. The purchase needs approval from The Higher Learning Commission, the University of Phoenix’s accrediting body. In order to get a spot on the commission’s November meeting agenda, the U of I and the University of Phoenix must submit their joint application to the commission by Friday.

‘This transaction is about more than money’

Elsewhere on its FAQ page, the U of I sought to allay other public concerns:

• The university downplayed the chances that it would need to provide up to $10 million a year to help the nonprofit make its payments. “Cash modeling has been undertaken and University of Phoenix currently generates approximately $100 million of unrestricted cash flow annually.”
• The U of I also framed the purchase as a potential moneymaker, providing the public university a new funding stream. “This transaction is about more than revenue, but the revenue U of I does receive may be reinvested in strategic initiatives.”
• The U of I conceded that the University of Phoenix’s reputation was “tarnished” by meteoric growth in the 2000s, when enrollment surged to 470,000 students. With a current enrollment of 85,000, the U of I says, the University of Phoenix has “refocused and redoubled its efforts on returning to its founding mission of quality education for adult learners.” (The U of I memo did not mention the University of Phoenix’s $191 million settlement with the Federal Trade Commission, reached in 2019 after the agency accused the school of deceptive advertising.)
• The U of I also downplayed the impact on daily campus operations. The U of I’s online courses will remain intact, and the two universities will provide separate degree paths. The U of I, meanwhile, says it will continue to “invest” in its goal of becoming the state’s first Carnegie Classification-recognized “R1” research institution.

In a memo, prepared ahead of Thursday’s State Board meeting, board staff said the benefits of the purchase outweigh the potential financial risk.

“The acquisition would provide UI and the state of Idaho access to a turnkey platform for delivery of online education at scale,” staff wrote. “It would help address the need for access to postsecondary education in the rural and remote areas of Idaho. Given demographic trends, it will diversify UI’s enrollment and revenue portfolio.”

Other partnerships — and other negotiations

The potential partnership is not unprecedented.

Several other public universities have acquired online partners, the U of I noted Wednesday.

But the U of I was evidently not the University of Phoenix’s first choice.

The University of Phoenix and the University of Arkansas were discussing a partnership in January, the Arkansas Times reported. In April, a divided University of Arkansas board of trustees rejected the partnership.

This story was originally published by IdahoEdNews.org.