The state Board of Education hit the reset button Friday on the purchase of the University of Phoenix.
In a unanimous vote, the board approved a one-year extension designed to allow the University of Idaho to continue negotiations with Phoenix, a large for-profit online university serving about 85,000 students.
The extension also sets the stage for ongoing negotiations with a skeptical Legislature that blocked the University of Illinois' controversial $685 million takeover earlier this year.
“Will the deal happen?” said board member Kurt Liebich, who was a key figure on the board in the Phoenix purchase. “I think it ultimately depends on the legislature.”
In addition to setting a new deadline (June 10), there are several major changes to the process that began more than a year ago.
First, the University of Illinois will receive $5 million from Phoenix. The money will cover some of the due diligence costs the University of Illinois incurred while pursuing the purchase, university spokeswoman Jody Walker said Friday. The University of Illinois spent at least $11 million on Phoenix-related consulting.
Second, the extension allows Phoenix and its owner, Apollo Global Management, to talk to other buyers. It also gives the private university the option to go public by conducting an initial public offering.
Third, it guarantees U of I a “break-up” fee if the deal doesn’t go through. The university will receive an additional $5 million if Phoenix doesn’t sell to anyone, and $15 million if Phoenix finds a new buyer or pursues an IPO.
At Friday morning's board meeting, U of I Chancellor C. Scott Green provided the state board with an understated update on the Phoenix talks. Sellers said he still considers U of I “the right match,” but at the same time, “they're also realists.”
“We hope to keep their interest,” Green said. “But there’s no guarantee that will happen.”
But at Friday's meeting, Green and Liebich once again emphasized the advantages of the deal.
Green said Phoenix's business model remains strong. The university is making money, enrollment is growing, and academic programs and business partnerships are strong. “We owe it to the people of Idaho to continue to work toward a solution.”
And 13 months after the state board first approved the idea, the Phoenix partnership is still committed to reshaping Idaho higher education, Liebich said. Online offerings will be expanded. Reaching adult learners, especially in rural communities. Offsetting the impact of declining birth rates and declining adult population aged 18 to 22. As lawmakers reduce the share of higher education in state budgets, it provides a new source of revenue.
The selling points have not changed, but the legal and political landscape remains volatile.
Attorney General Raúl Labrador took the state board to the Idaho Supreme Court to challenge the closed-door discussions on Phoenix. The year-long legal battle left U of I unable to enter the bond market to fund the purchase.
Meanwhile, both houses of Congress voted to delay or block the Phoenix deal, putting the purchase at risk.
The extension will allow U of I and Phoenix to continue negotiating with legislators, Green said.
But Friday offered a glimpse into just how difficult the process can be.
After the state board's hybrid meeting was postponed and signed by Green and other U of I administrators, Representative John Gannon cracked down on state board officials who were meeting in person in the board room.
Gannon, a Boise Democrat, has been a major critic of the Phoenix acquisition and co-sponsored a House-passed resolution opposing the deal. On Friday, Gannon peppered board members with questions, repeatedly asking whether the University of Illinois should be held responsible for Phoenix's existing debt.
Board members pointed to a suggestion Greene made Friday. Lawmakers could be allowed to see more details about the deal if they agree to sign a confidentiality agreement. Liebig said the state committee's publicity will increase after the November election and the council's internal leadership election.
Gannon seemed less convinced.
“Making all the information available to everyone is the first step,” he told Liebig.
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