Special situations fund Engine Capital and investment firm Hawk Ridge Capital Management have issued an open letter to the Adtalem Global Education’s board expressing serious concerns with disappointing returns at the company.

Engine Capital and Hawk Ridge are significant stockholders of Adtalem Global Education with an aggregate ownership of approximately 3.9% of the company’s outstanding shares.

Pointing out that returns have lagged those of its self-selected peers for years, the two investors attributed the company’s stock price underperformance to a number of reasons including: subpar operational performance in an otherwise favourable business climate; poor capital allocation practices; the need for operational reorganisation and personnel rightsizing, an unnecessary conglomerate structure; and finally, a lack of operational and industry experience among members of the board and management.

The letter concludes with Engine and Hawk Ridge’s outline of a series of actions within the control of Adtalem’s senior management and board to address the issues and create stockholder value, referred to in the letter as the “2022 Adtalem Plan”. The five points of the plan are:

1. Aggressively investigate false claims allegations raised by the Department of Justice and explore all possible options for terminating the Walden transaction [Walden University is an online healthcare education provider that Adtelem has agreed to buy from Laureate Education for $1.48 billion]. This investigation should be conducted by a special committee of the board under the guidance of a law firm that was not involved in the initial due diligence of Walden.

2. Place people with significant operational and industry experience in charge of decision-making.

3. Separate the chairman and chief executive roles to assure proper oversight and add board members with for-profit education experience.

4. Eliminate Adtalem’s holding company structure and conglomerate discount by divesting the financial services division, thereby reducing the need for multiple layers of management. In doing so, Adtalem would become a focused, pure-play healthcare education company.

5. Further eliminate corporate overhead and redundancies by reassigning certain corporate functions (such as marketing and IT) to the divisions and aggressively reducing costs throughout the organisation through personnel reduction and consolidation (for example, Ross and AUC’s business functions) [the American University of the Caribbean School of Medicine in Sint Maarten, and Ross University School of Medicine (RUSM) in Barbados].

Engine and Hawk Ridge also announced the launch of a website LetsFixAdtalemTogether.com, dedicated to sharing their views about creating value at the company, encouraging interested parties to visit the site regularly.

Adtalem swiftly issued a statement which read: “Adtalem is committed to maintaining an active dialogue with its shareholders and welcomes feedback that may advance the goal of enhancing value for all shareholders. Members of Adtalem’s Board of Directors and management team have met with representatives of Engine and Hawk Ridge on numerous occasions in recent weeks. The company will consider Engine’s and Hawk Ridge’s views in due course and looks forward to continuing a constructive dialogue.

“Adtalem is focused on executing its long-term growth strategy to create a leading workforce solutions provider through strategic investments and the streamlining of its portfolio. In line with this strategy and to meet the needs of an evolving market, the company divested DeVry University and Carrington College in 2018 and Adtalem Brazil in 2020. In addition, in 2020 the company announced a definitive agreement to acquire Walden University, a leading online healthcare education provider. With the addition of Walden University, Adtalem will have an even greater ability to broaden access to high-quality education for students through an unmatched depth and breadth of online, on-campus and hybrid educational offerings and clinical partnerships.”

Lisa Wardell, chairman and chief executive of Adtalem, said: “We remain focused on executing our leading workforce solutions provider strategy and expanding our portfolio in high-growth areas while divesting those businesses that were not aligned with our long-term growth strategy. We continue to prioritise creating long-term shareholder value and amplifying our social impact on our students, employer partners and the communities that we serve.”

Date published: 22 January 2021

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