The non-binding deadline passed quietly last week. The University of Idaho's $685 million acquisition plan for the University of Phoenix is still in the works, but it's in high jeopardy.
There are two main reasons why the two sides were unable to reach a deal by the May 31 voluntary withdrawal date. This is due to resistance from the National Assembly and slow-moving litigation.
The lawsuit will take center stage again on June 13 when Attorney General Raúl Labrador files a lawsuit in the Idaho Supreme Court against the state Board of Education. The oral arguments will come 359 days after Labrador first filed a lawsuit alleging that the state commission's closed-door discussions about the Phoenix purchase violated Idaho's open meetings law.
No matter what happens in court next week, and when and how the Supreme Court's five justices decide, the lawsuit has already delayed a purchase Labrador has publicly questioned in some of its previous legal filings. It will now become more difficult, if not downright impossible, for the U of I to acquire a for-profit university with 85,000 students, a half-century of experience in the online space, and numerous reputational issues.
The legal arguments haven't changed much since last year. At the time, U of I and Phoenix officials expected to close the blockbuster deal by early 2024. Phoenix deal. Supreme Court briefings provide a refresher course of sorts.
Labrador disputes the basis for the closed-door meeting, namely the state board's claim that it was conducting a bidding war between the U of I and other suitors. These closed-door meetings excluded the public from the process, contributing to the controversy that currently plagues the deal. “The need for public awareness may have never been higher than with the University of Phoenix’s massive deal,” Joshua Turner, director of constitutional litigation and policy at the University of Labrador, wrote May 20.
Lawyers hired by the state board argue that Ada County District Judge Jason Scott made the right decision in late January when he ruled that a closed session was warranted. The commission's legal team said the closed-door meetings benefited taxpayers and allowed Idaho to get the best deal. “If it had been known to the public that the University of Idaho was negotiating with the University of Phoenix for a purchase price of $685 million,” Eric Stokes said in a May 13 briefing, “it would be a shame.”
Essentially, this is a long legal process on government transparency, and obviously I am not going to downplay the importance of that principle. But the lawsuit has already had a material impact on the Phoenix purchase, halting financing.
Never mind that Labrador's team suffered a crushing defeat in Scott's court. Never mind the tedious trial marked by hours of repeated questioning of state committee members and the bizarre delays caused by Labrador's lead lawyer failing to show up one morning, citing illness. And never mind that Scott said the Labrador office was responsible for $240,000 of the state board's legal costs.
The Labrador team was challenged every step of the way in court, but the lawsuits prevented the buyers from issuing bonds to finance the purchase of Phoenix. A Supreme Court appeal then put the bonding process on hold for several months.
No financing, no purchases.
Whether you like the proposed Phoenix purchase or not, or whether you like Labrador's litigation approach or not, there's no question that this lawsuit is a big reason why the Phoenix purchase faltered.
As Idaho EdNews first reported last week, Phoenix's interest in the U of I may be waning. Phoenix's owner, Apollo Global Management, has suggested it is willing to continue negotiations with U of I, but Apollo also wants to talk to other would-be buyers.
Apollo and U of I agreed to continue talks until at least the end of June, U of I said last week.
An oddly non-exclusive process may uncover some answers to one of the big questions that repeatedly arise in Labrador's lawsuits. In other words, is U of I the only serious bidder for Phoenix, or are there others? The state board and the University of Michigan have argued that Phoenix has always been a hot commodity, even after the University of Arkansas trustees voted against pursuing it in April 2023. Labrador suggested the details of the competition were sketchy at best and were conveniently used by the state committee to justify closed-door meetings.
However, non-proprietary processes are also closer to open processes. That's even if Apollo and Phoenix are predictably tight-lipped about any talks with potential buyers. Now it's a matter of public record how much U of I is willing to pay for Phoenix. Other bidders are aware of U of I's limits. Stokes' scenario of a last-minute bidder offering $690 million is not in doubt.
Bottom line: Now it's going to get a lot more complicated for U of I to pull off a Phoenix deal.
Both houses of the state Legislature have gone on record opposing the 2024 purchase, and there's no guarantee lawmakers will be any more satisfied with the deal in 2025. If the Supreme Court sides with Labrador, the state board could be forced to go to trial. Once again, approve the Phoenix deal and try to find a governance structure that can meet the concerns of lawmakers.
It's no surprise that Apollo, an eager seller eager to get Phoenix off its books, wants to find another buyer. A year of litigation and legislative resistance was probably the last thing Apollo had in mind when it agreed to sell to U of I.
Eager to move on, Apollo floated the idea of paying a “break-up fee” to cover the $11 million the U of I paid for Phoenix due diligence and consulting.
For U of I, that may not be the way forward. Instead, it will be an off-ramp.
A year ago, U of I officials had no off-ramp in mind as they aggressively promoted and promoted the Phoenix megadeal. But a lot has changed since then, and no matter what happens at the Supreme Court, things will never go back to the way they were.
Kevin Richert writes weekly analysis of education policy and education politics. Look for his story every Thursday.
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