Purchase of NEC’s Applied Learning Proposed
The former president of a National Education Corp. subsidiary, Applied Learning International, has proposed purchasing the troubled division, saying that current management is too inexperienced to solve its problems.
In a Feb. 22 letter to NEC Chairman David C. Jones, former ALI President William R. Roach proposed that the money-losing subsidiary be merged into his company, Edu Corp. in Rolling Meadows, Ill.
“I am extremely concerned as a shareholder that steps are not being taken to pursue a major restructuring of NEC, which would probably include the sale or merger of ALI,” Roach said in his letter to Jones. “ALI is primarily responsible for the serious decline of NEC’s stock price from $30 a share to $5 per share in the last 18 months.”
NEC’s stock closed Monday at $6.25, up 12.5 cents per share.
Jerry Derloshon, an NEC spokesman, said Monday that the company had no immediate reaction but expected to issue a written statement today.
Roach has proposed that NEC sell ALI in exchange for a minority stake in a new company that would be created through a merger of Edu Corp. and ALI. Both companies sell educational materials and services to corporations and government.
The sale would greatly benefit NEC by relieving the Irvine firm of a money-losing operation, Roach said on Monday. NEC would also benefit, he added, as a minority owner in a $25-million revitalization plan that he has proposed for ALI, which currently has a negative cash flow.
Roach said NEC has refused to respond to his offer since he first proposed it last October.
“I think those folks appear to be pretty comfortable on the board, so I guess they are not interested in pursuing it,” Roach said. “But we have made a proposal which we believe will significantly enhance shareholder value and relieve NEC of the burden of what appears to be a losing operation.”
Edu Corp has retained Salomon Bros., the New York investment-banking firm, as an adviser for the deal.
Applied Learning has had problems ever since it was created through the merger of two educational companies in December, 1987.
Because of snafus with separate computer and sales forces, customers of the Naperville, Ill.-based division were being overbilled, underbilled or not charged at all for services.
NEC’s management has said it now has the problems under control, but the company’s stock has failed to respond.
Wall Street analysts spoke highly of Roach but had a mixed reaction to his proposal.
“There are a couple of wild cards in this, including whether National Education wants to give up 100% of what could still be a very, very important business to them,” said Jeffrey Kessler, an analyst with Shearson Lehman Hutton.
If NEC did sell Applied Learning, it would return to its core business of vocational training, which has been experiencing flat sales.
But a sale would greatly enhance NEC’s cash flow. The company’s lenders have imposed an April 30 deadline requiring the firm to raise about $10 million in capital.
Roach resigned his position as president of ALI in September, 1988, having presided over ALI’s creation.
“Despite what he says,” Kessler said, “Roach is not totally blameless for the situation at ALI today.” But some analysts said that the bulk of problems began after his departure.
NEC is expected to resist Roach’s bid.
“My guess would be he is not going to be welcomed with open arms,” said Fred Anschel, an analyst with Dean Witter Reynolds. “There were and are some significant differences in operating philosophies between Roach and NEC’s current management.”
Richard C. Blum & Associates--one of NEC’s largest stockholders--refused comment on the proposal Monday, but a spokesman said that Blum has a favorable opinion of Roach.
NEC is the subject of two investor lawsuits, both of which allege that some former top executives at the company misled stockholders by trying to play down financial problems at Applied Learning.
NEC has said it is innocent of any wrongdoing.
APPLIED LEARNING AT A GLANCE
Headquarters: Naperville, Ill.
Principal business: Corporate and government education and training
President: Ronald N. Tapper
Annual revenue: more than $200 million (1989)
Employees: 600
Founded: December, 1987
Parent company: National Education Corp., Irvine.
Source: National Education Corp.
