Quote:Private School; Many former GM workers now retrain at DeVry

Eric Lam, Financial Post  
Published: Wednesday, June 03, 2009

DeVry has always said it is Serious about Success. Yesterday, Standard & Poor's bought in to the company slogan by dropping GM and tapping DeVry as its replacement on the benchmark S&P 500 index.

Canadians will remember the DeVry Institute of Technology as the 1980s school of last resort for any student unlucky enough not to have been accepted anywhere else.

However in the United States DeVry Inc. (DV/NYSE), with more than 90 locations across 26 states, has enjoyed consistent success in the less-regulated U. S. post-secondary education sector.

"We're not looking for a colossal company. DeVry is close to US$3-billion in value, which assures [a smooth transition]," S&P index chair David Blitzer said.

The index maker had picked DeVry out of a pre-reviewed list of five to 15 candidates, in part because its swap with GM would not cause too much disruption for index fund managers.

The fact that it has had several quarters of profitability and doubled in value in the past five years also helped.

Shares in DeVry, which will join the index on June 8, have shot up more than 6% since market open on Monday, closing yesterday at US$46.59.

"It is a symbolic shift," said Trace Urdan, managing director and education analyst at Signal Hill. "They are helping to transition the workforce from one type of skill to another."

Mr. Urdan, who is based in San Francisco, said he is aware of the irony that many workers who have lost their jobs due to GM plant closures will be looking to community colleges and private universities such as DeVry for a new career, often in the medical or auto repair fields.

"People will borrow US$10,000 to US$13,000 to go to school," he said. "Placing people into jobs making upwards of US$60,000 a year is not a bad thing for laid off GM workers to do."

"We consider a lot of aspects, but poetic replacements are not high on that list," Mr. Blitzer said.

DeVry will become the third private school company listed on the index. It joins market leader Apollo Group Inc. (APOL/NASDAQ), which owns the University of Phoenix, and the Washington Post Co. (WPO/ NYSE) which owns Kaplan Inc.

Shares in Apollo have jumped almost 10% since Monday to close at US$64.18 yesterday.

This will put pressure on the White House to support the for-profit education sector, Mr. Urdan said.

"[President Barack Obama and Treasury Secretary Timothy Geithner] seem almost oblivious right now to what investors feel," he said. "So the more education stocks there are on the S&P the more they'll pay attention to how it's doing."

Investors are worried that the Obama administration will introduce additional regulations to the sector, but the companies' strong financials make them attractive, he said.

While DeVry and others have enjoyed recent 10% to 20% average enrollment increases in the growing US$310-billion a year American post-secondary education business, they have had very little luck in Canada.

The most memorable is DeVry, which once had several campuses in Toronto. But it fled for Calgary in 2003 after dealing with a class-action lawsuit from students in 1996 alleging the company did not adequately prepare them for work in the tech industry.

Since then, other U. S.-based colleges and universities have tried satellite campuses, the latest being Apollo's Meritus University in New Brunswick last May.

For now, Canada's for-profit education sector remains steady if unspectacular. One bright spot is Lingo Media Corp., a Toronto-based company that produces Englishlanguage books and audio tapes in China for students from kindergarten to post-secondary.