April 24, 2023

Arkansas Trustees Reject University of Phoenix Purchase

Arkansas Trustees Reject University of Phoenix Purchase

This afternoon, at the end of a 40 minute Zoom meeting, the board of trustees of the University of Arkansas System voted 5-4 to reject a resolution that would have endorsed a plan by the System president, Donald Bobbitt, to have a non-profit organization associated with the school purchase the for-profit University of Phoenix.

Bobbitt asserted at the meeting’s start that the resolution was only advisory because the proposed deal was simply a licensing agreement, and the UA System president has the “power” to sign licensing agreements. But, he said, “I felt it was important for the board to weigh in.” Whether Bobbitt decides to override the board’s recommendation, and whether that decision will be sustained, remains to be seen. One trustee opposed to the agreement, attorney Kevin Crass, asserted, convincingly, that the proposed transaction was no licensing agreement.

Under the proposed deal, a newly-created Arkansas non-profit, Transformative Education Services (TES), would acquire Phoenix from private equity firm Apollo Global Management. But trustees who spoke in opposition to the deal at today’s meeting expressed concerns about the Arkansas System’s lack of control of Phoenix under the deal, about the System’s inability to cancel the deal, and about the troubling reputation and record of the University of Phoenix.

At the start of the meeting, board of trustees chair Morril Harriman, a Little Rock attorney, announced that trustee Kelly Eichler would abstain from voting on the resolution. The Arkansas Times reported last week that Eichler, who is also deputy chief of staff to Arkansas governor Sarah Huckabee Sanders, is married to the chief operating officer for Little Rock financial services company Stephens Inc., which is involved in the proposed deal and would likely make millions if the agreement were approved. The trustee board’s ethics policy seemed to indicate that recusal would be appropriate in these circumstances. At last week’s trustee’s meeting, Eichler spoke, and her comments suggested  she supported the deal.  Harriman today said Eichler would be permitted to speak if she wished, but she made no comments.

Another board member, Ted Dickey, worked at Stephens as a vice president from 1997 to 2003, according to his LinkedIn profile. He voted in favor of the deal, along with trustees Ed Fryar, a former poultry industry executive, Jeremy Wilson, a private equity executive, and Nathaniel Todd, a retired Army colonel who is now the secretary of the Arkansas Department of Veterans Affairs. (Fryar is one of three members of the new TES board, and since TES is supposedly independent of the UA System and supposedly stands to benefit from the Phoenix deal, perhaps he should have recused as well.) 

Opposing the resolution were chair Harriman and trustees Sheffield Nelson, an attorney; Tommy Boyer, a business executive and former All-American basketball player at the University of Arkansas; business executive Steve Cox, a former NFL kicker and All-American football player for Arkansas; and Crass. 

Bobbitt opened the meeting by stressing that the UA System would not own the University of Phoenix and asserting that the school would be “protected from financial and legal liability.” He also said that a $20 million revenue stream from the new non-profit Phoenix to the UA System was “guaranteed”; there would be penalties if the payments weren’t made.

Trustee Ed Fryar then spoke up, asserting that in addition to the guaranteed $20 million, there is $30 million in “unrestricted cash flow” that Phoenix generates, and some of that might by available to the UA System.

Fryar also said that 50 years ago FedEx moved to Memphis because Little Rock wouldn’t extend its airport runway. “This is a FedEx moment,” he exclaimed. (At last week’s trustee meeting, similarly, Dickey said that rejecting the Phoenix deal would compare to Blockbuster failing to buy Netflix.) 

Fryar really wanted the board to seize the moment quick. At last week’s meeting, he claimed, “I’ve heard there are four other schools talking to Phoenix right now. I really believe that.” 

Todd, the only trustee in the room with Bobbitt and his staff during today’s call, tried to rally support for the resolution with extensive remarks. While stating that he lacked the business and legal experience of some other trustees, he claimed expertise on strategy, citing his years at the Pentagon. He said the online education “space” is critical to learning. He said he trusted Fryar and the others supporting the deal. He said there were always risks, but he suspected that the risks here were “moderate to low.”

Todd didn’t explain why he thought that acquiring Phoenix was the only way to get into the online space. Nor did he note that both the Pentagon and the U.S. Department of Veterans Affairs each temporarily suspended the University of Phoenix in recent years for deceptive practices.

Among the trustees speaking up against the deal, chair Harriman expressed concern that UA Trustees would have “no control and no governance responsibility” over the newly acquired school.  

Trustee Crass also warned of this lack of control. He worried that if the head of the acquired University of Phoenix was doing something inconsistent with the UA mission, the trustees “couldn’t do anything about it.”

Crass also disputed Bobbitt’s assertion that UA would be able to walk away from the deal if, as Crass put it, “this doesn’t play out.” He noted the agreements terms did not allow UA to terminate until the last year of the ten year term – troubling, he said, because the future of the University of Phoenix and its financial performance were unclear. (Called on later to back up Bobbitt’s position, UA general counsel Patrick Hollingsworth gave a low-key answer that ultimately confirmed the essentials of Crass’s reading of the termination provision.)

And while Crass said he had “total respect” for Stephens Inc., he worried that the trustees did not have access to Stephens’ financial analysis and were instead being asked to take “a leap of faith.”

Trustee Nelson was the most blunt about the deal. He expressed concern that the trustees had been kept in the dark for a year and a half while Bobbitt’s team negotiated an agreement. (Fryar insisted that Bobbitt had kept the board informed.) Nelson asserted that even now, “No one knows what they’re voting on.” He added, “I think it’s a mess.” He rejected the FedEx comparison, asserting that the University of Phoenix  “has a terrible reputation.” He said the deal would be “terrible for the state of Arkansas and terrible for education.”  He added that he had heard two or three people say that Bobbitt is “obsessed” with the deal, and that he felt “misled” because he hadn’t been informed there was “another side” to the matter. He said his opposition would not change “six months from now” or further into the future.

UPDATE 04-24-23 7:00 pm:

After the meeting, a UA System spokesperson, Nathan Hinkel, issued a statement: “Dr. Bobbitt has previously said it would be difficult to move forward without support from the Board for this project. That statement remains true, and he is certainly disappointed in the outcome of the meeting.”