How can we improve America's public schools? Lots of people have lots of ideas. One notion, championed by, among others, entrepreneur Chris Whittle, is to privatize the system. Whittle turned this idea into a business, Edison Schools (NASDAQ:EDSN), intent on running schools, teaching children, and making money at the same time. To date, Whittle has signed up around 100 schools enrolling roughly 88,000 students.
The money part's been a problem, however. Yesterday, Whittle announced that he plans to take Edison private and will continue managing the firm. Edison Schools, which went public in 1999's go-go stock market at about $18 per share, peaked at nearly $37 per share in early 2001. Roughly a year ago, the stock sat at a mere 14 cents per stub, though it rebounded recently to between $1 and $2 per share.
We interviewed Whittle on The Motley Fool Radio Show back in 2000 (read the transcript) and questioned then whether it would ever be a very profitable company.
The buyout, orchestrated by Whittle himself and Liberty Partners investment group and approved by the Edison board of directors, offers shareholders $1.76 per share (for a total of $93.5 million), plus the assumption of some $80.5 million in debt, for a total value of $174 million. If you bought your shares for $2, $5, or $30 apiece, you're likely not smiling.
Few deny that the education biz is a tough one; however, several public companies providing post-secondary education have been booming. Witness Apollo Group (NASDAQ:APOL), which runs (among other endeavors) the very successful University of Phoenix virtual campus online. Apollo has been flirting with a 52-week high and sports a market cap approaching $11.5 billion. Quite a contrast with Edison's $80-some million.
If there's a lesson in Edison's journey, it's that no matter how great the hope you might have for a company, or how innovative it may appear, never invest your hard-earned dollars unless you're pretty confident in its sustainable profitability and growth prospects. Write that 50 times on a blackboard, if it will help you remember.
