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Milken, Ellison Invest in Private-Schools Firm

January 27, 1998|From Bloomberg News

WASHINGTON — An education company backed by Michael Milken and Oracle Corp. Chairman Lawrence Ellison delved into the elementary school arena by taking a 21.2% stake in a Pennsylvania school operator.

Knowledge Universe and several affiliates reported the purchase of 1.28 million common shares of Nobel Education Dynamics Inc. of Media, Pa., in a regulatory filing, saying they may eventually seek a majority stake.

Milken, the former Drexel Burnham Lambert junk bond financier, and Ellison formed Knowledge Universe to invest in education. The Nobel acquisition gives them a stake in one of the few companies focusing on the $200 billion spent in the United States each year on kindergarten through eighth-grade education.

"Up until now, we have been the only play in the K through 12 market," said A.J. Clegg, chairman and chief executive of Nobel. Knowledge Universe officials, he said, "believe in what we are doing and they believe we should roll the schools out more quickly."

Nobel operates more than 120 preschools, elementary schools and middle schools in 14 states.

Under Nobel's system, the company's preschools feed students into its elementary and middle schools, where a higher ratio of students per teacher translates into fatter profit margins, according to Bob Mitchell, a portfolio manager at Martindale Andres & Co., a West Conshohocken, Pa., money-management firm.

However, the company recently established many of its elementary schools, which require 18 to 24 months to reach profitable enrollment levels. This and other factors hurt Nobel's 1997 financial performance, and its shares traded as low as $4.50 on Dec. 30, down from $12.50 at the beginning of last year. On Monday, Nobel shares rose 25 cents to close at $7.88 on Nasdaq.

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