Laureate Education, the for-profit education company with close ties to former President Bill Clinton that faces charges for being part of the the Clinton Foundation “pay-to-play”enterprise, has been in a free fall on the stock exchange since its Initial Public Offering (IPO) Feb. 1.
Its 11 percent drop makes the company the second-poorest performing IPO on the stock market this year and it is trading below its peer group of for-profit education companies.
The firm’s owners, led by leverage buyout king KKR & Co. L.P., took the $4.2 billion debt-ridden company public a month ago in the hopes it could recover some of its investment by selling shares on the NASDAQ exchange. It set an initial price of between $17 to $20 per share which could have raised more than half billion dollars.
Yet on the eve of the launch the company’s owners dramatically discounted the initial price to $14 per share, a price the stock has never met. It has hovered around $13 since its launch, but on Friday the price plunged to $12.50, more than a half percent drop.
Last Wednesday, when the stock market soared 303 points and the NASDAQ notched a record high, Laureate stock fell.
Despite its indebtedness, Laureate found $17.6 million to pay Clinton as its “honorary chancellor” and the company donated up to $5 million more to the Clinton Foundation.
The company now is under investigation by the Internal Revenue Service whether it gave funds to the Clinton Foundation in a “pay-to-play” scheme whereby the company received favors by then-Secretary of State Hillary Clinton. Laureate failed in its IPO filing to inform potential investors of the IRS investigation.
In 2013, when Clinton was about to leave the Department of State and Bill Clinton still was Laureate’s “honorary chancellor,” the International Finance Corporation — an arm of the World Bank — invested $200 million in the company.
Laureate hired Robert B. Zoellick, the bank’s president, as an “independent director” the same year the $200 million was awarded to the company. It was the largest IFC investment in the unit’s history.
Sixty-four House members singled out Laureate last year as a “pay-to-play enterprise” and asked the IRS to launch its investigation. A week later, IRS Commissioner John Koskinen referred the complaint to its exempt office, which regulates charities and foundations.
Unlike other for-profit education companies in the United States, most of Laureate’s programs are overseas, which has been a fast-growing market for the education programs. But it also is facing risks around the world, as governments are imposing more regulatory scrutiny on the practices of these companies, including Laureate.
The company has voluntarily acknowledged it is facing charges that one of its institutions in Turkey may have violated the U.S. Foreign Corrupt Practices Act, which bars American companies from bribing local officials for business.
Laureate also faces lawsuits and regulatory investigations in Chile based on charges of deceptive trade practices and false claims.
In Brazil, a 2014 regulatory change permits the delay of payments to companies like Laureate. In its IPO filing, it conceded to investors that, “Such a delay in tuition payments from government-sponsored programs may negatively affect our liquidity and we may require additional working capital or third-party funding to finance our operations.”
The company also acknowledged in its filing that it has “two material weaknesses” affecting internal controls and the ability to produce accurate financial statements on a timely basis.
Kathleen Smith, an IPO manager at Renaissance Capital noted that its stock continues to fall, despite a 24 percent discount in the opening price. She told theDCNF it was “the deepest discount of any IPO so far this year.”
But its continued fall to $12.50 Friday “makes it the second worse performing IPO this year,” she said.
“By our numbers, Laureate is trading below its peer group of US-based for-profit education peers,” she added.
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