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Sylvan Learning Buys National Education Corp.

Acquisition: The deal makes Irvine company part of largest firm in the education and business training field.


IRVINE — National Education Corp., which operates the world's largest correspondence school program, said Wednesday it will be acquired by Sylvan Learning Systems Inc., creating the country's biggest for-profit educational and vocational training business.

The $675-million stock deal caps a turnaround year for Irvine-based National Education. The company posted a string of hefty losses in the late 1980s and early '90s, but broke into the black last year.

Officials at National and Sylvan praised the decision to team up in the rapidly growing $60-billion private education and training market in the U.S. But investors weren't leaping to embrace the deal. Both companies' shares fell Wednesday in heavy trading.

"This is the biggest deal in the history of the industry," said Doug Becker, Sylvan's co-chief executive. "It doesn't surprise me that there are some initial reservations."

Baltimore-based Sylvan, which operates a chain of 650 tutoring centers catering primarily to students from kindergarten through high school, was hit hardest. Its stock plunged 15% to close at $29.875 Wednesday, down $5.25 for the day, on the Nasdaq market. NEC's stock dropped 5% to close at $16.25, down 87.5 cents, on the New York Stock Exchange.

Both stocks had risen rapidly in recent weeks on rumors of a sale or merger. Analysts suggested that much of Wednesday's price drop was caused by speculators deciding to take their profits and get out.

But investors might also be concerned about the prospects for the combined company.

"We think it is a potential home run, but there are those who wonder why Sylvan is buying a company that was two steps from the grave not too long ago and is not growing anywhere near as fast as Sylvan," said Michael T. Moe, an analyst with Montgomery Securities in San Francisco.

National posted a $21.4-million profit on $289 million in revenue in 1996 after a reorganization led by turnaround specialist Sam Yau. But the company had been hemorrhaging cash for years before that. Its combined losses from 1987 through 1995 totaled $150 million.

Sylvan went public in 1993 and has been making money since 1994. Its profit jumped by more than 500% last year to $14.7 million. Sales have nearly doubled every year since the public offering, hitting $157.1 million in 1996.

The company has had problems of its own, though. Early last year, the National Assn. of Securities Dealers--which had just awarded Sylvan a $6-million contract to train stock brokers--said it was looking into possible insider trading in Sylvan shares in advance of the contract announcement. An NASD spokesman said he was not aware of any action being taken.

Meanwhile, Sylvan has been making acquisitions and gaining new clients at a hectic pace.

In addition to its 10-year pact to train brokers for NASD, the company recently acquired Wall Street Institute International, a Spanish company with centers that teach English. It also has joined with Educational Testing Services and Johns Hopkins University to provide competency and certification testing for various technology and medical skills.

Yau, National's president, said the sale to Sylvan "makes great strategic sense" because it combines two businesses whose products are complementary rather than competitive. As a result, he said, there shouldn't be many layoffs among National Education's 2,000 employees. The company has only 40 employees at its corporate office in Irvine, where Yau will be headquartered.

The new company will take the Sylvan name, Yau said. Chris Hoehn-Saric, Sylvan's chairman and co-chief executive officer, will serve as chairman of the combined entity. Yau will join Becker as co-chief executive.

Sylvan will issue 0.58 share of its stock for each National Education share, a deal that values National stock at $18.34 per share at Wednesday's closing prices. National shareholders will have a 47% stake in the combined company, which would have almost $500 million in sales.

The proposed deal, which has been approved by directors of both companies, still must cleared by shareholders and federal regulators. Yau said he expects the sale to be completed by July.

Yau, hired by National Education less than two years ago to reverse its decline, said the acquisition grew out of talks between the two companies about combining some of their marketing efforts.

"It just became apparent that all the pieces fit together," he said.

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