National Education Divests Itself of S. Africa Subsidiary
National Education Corp. in Irvine said it has sold its South African subsidiary as a result of a 2-month-old federal law that eliminates tax credits for U. S. companies doing business in South Africa.
NEC sold its International Correspondence Schools to the subsidiary’s managers and employees, said Jack Polley, a vice president of NEC, the largest operator of vocational schools and training programs in the United States.
While International Correspondence was a growing operation that remained profitable even at the higher tax rate, “it wasn’t worth the effort for the amount of profit,” said Polley. In December, Congress passed the measure that bars firms from deducting taxes they paid to the South African government from the taxes they owe the United States. The legislation was a last-minute insertion into an omnibus budget defict-reduction bill.
Opponents of the tax law have complained that it would force U. S. firms to hurriedly sell their South African assets at a loss. But NEC President David Bright said his company received a “handsome profit, above book value” for the subsidiary.
The South African-based subsidiary, which offers accounting and technical courses by correspondence, had revenues of about $3 million last year, contrasted with NEC’s total revenues of $378 million. NEC attorney Jeffrey Brill said managers and employees of International Correspondence borrowed cash to buy the business, but NEC declined to release the sale price.
From 1983 to 1987, 151 U. S. firms pulled out of South Africa amid pressure from groups opposed to the white-ruled South African government and its treatment of the country’s 25 million blacks, according to the Investor Responsibility Research Center in Washington.
Allison Cooper, a spokeswoman for the organization that monitors activity of U. S. corporations, said 159 U.S. companies continue to operate in South Africa.
Three other U. S. firms, including Bausch & Lomb, Reynolds & Reynolds and Allegis, have withdrawn from South Africa this year, Cooper said. She said NEC is the first firm that has cited the tax law as its reason for disinvestment.
Polley said NEC didn’t join the disinvestment trend earlier because “we felt we could make a difference, a contribution, for all of the people by being there.”
He said that most of International Correspondence’s employees were black and that a significant number of the subsidiary’s students were black.
Bright said International Correspondence will be allowed to continue using its name for two years. But he said NEC, which has subsidiaries in several foreign countries, will not receive licensing or royalty payments from the subsidiary.
Cooper said about half of the U. S. firms that have sold their South African businesses to local managers or employees retained licensing or royalty agreements.
