The red pen comes out for Apollo Education

February 9, 2016

Over the past five years, we’ve written more about the for-profit education space than pretty much any other industry (since 2010, we’ve published more than four dozen Red Flag Alerts for subscribers about Apollo alone). Our latest was published on Friday, when Apollo filed this 8-K in the weekly Friday Night Dump.

Beyond the challenges of a business model relying on government handouts, which we and plenty of others have highlighted over the years, there have been numerous examples of company executives enriching themselves while shareholders (not to mention students at these for-profit schools) have been left holding the bag.

We were reminded of this yesterday, when the news was announced that a consortium led by Apollo Global Management (no relation to the company) was going to take the company private in a deal valued at $1.1 billion.

It’s a win for the company, since as a private company it won’t face as much scrutiny from shareholders and won’t have to file those pesky SEC filings that we’ve pored over these past five years. But it’s a bigger win for Apollo’s executives, who stand to get big payouts if the deal goes through and a Change of Control occurs.

According to the proxy filed Dec. 23, 2015, some of the payments are single trigger (they will be made if the CIC occurs), while others are double trigger (they will be made if the CIC occurs and the executive subsequently loses his job).

If his job ends as a result of the CIC, CEO Gregory Capelli could get more than $8.35 M (nearly $3.9 M in severance, the $3.65 M in equity awards, $750 K for the cash retention award, plus nearly $49 K for COBRA premiums and outplacement assistance). Even if Capelli keeps his job after the CIC, he could get about $3.65 M in equity awards plus $750 K for the cash retention award he got in August, 2015.

Other NEOs stand to gain single-trigger payments that range from $275 K – $618.7 K, or double-trigger payouts of $4.54 M for SVP/COO J. Mitchell Bowling down to $2.31 M for President, University of Phoenix Timothy Slottow. (There is one outlier, Senior Advisor to the CEO Joseph D’Amico, who served as Interim CFO from May – Oct. 26, 2015; he may just get $201 K.)

But D’Amico will benefit in another way, thanks to this exhibit to the 10-Q that Apollo Education Group filed on January 11, 2016. In that exhibit/letter, the company agreed to pay D’Amico an effective salary of $500 per hour for about 20 hours a week of work.

D’Amico’s letter never specified the areas about which he is to advise Cappelli. But the company is facing so many challenges – the current merger plan, numerous Investigative Subpoenas and Civil Investigative Demands from several states’ Attorneys General, the FTC, and the Department of Education; and the closing of about 150 University of Phoenix ground locations, to name just a few of them – that there’s no shortage of problems to solve.

On news of the deal, Apollo’s stock jumped to around $8.65  a share (the proposed deal is for $9.50, so the fact that it’s still trading lower than that says something on its own), which was a 24% pop over Friday’s closing price. Of course, that’s little comfort to investors wh bought a year ago, when the stock was trading nearly 70% higher.

If we were grading these deals, we would give the executives an “A” for working out terms that are mighty sweet for themselves. But if we were looking at it from the shareholders’ point of view, we’d once again whip out our big, red pen and scrawl an “F” at the top of the page.

Leave a Reply

You must be logged in to post a comment.