Edison Schools Inc., facing a potentially make-or-break school year, sought last week to reassure Wall Street that it was taking aggressive steps to become profitable by cutting money-losing contracts and speeding development of new business areas.
Christopher Whittle, the chief executive officer of the nation’s largest private manager of public schools, told an investors’ conference here Aug. 1 that the company was undergoing “a corporate gut check” after a series of setbacks last spring that included a tumbling stock price and a Securities and Exchange Commission inquiry into one of its accounting practices.
“It was a perfect storm we went through in the spring,” Mr. Whittle said. But the weather brightened for the company last week as it reached an agreement with Philadelphia’s school reform commission to manage 20 city schools serving more than 13,000 students, beginning this fall. (“Phila. Lines Up Outside Groups to Run Schools,” this issue.)
The Philadelphia situation has dominated the company’s attention in recent months, and Edison had raised expectations that it might be awarded management of as many as 45 schools there, along with a separate consulting role for the whole district. When Edison won just 20 schools, its stock price plummeted and has been trading in recent weeks for just around $1 per share.
More recently, the state of Pennsylvania and the five-member reform commission have been haggling over a number of issues that delayed final contracts with the providers of school management services. Edison was to receive the largest number of schools. On July 31, all sides reached an agreement.
Edison and the other providers will now undertake the nation’s largest experiment yet in private management of public schools. “What is really being created there,” Mr. Whittle said, “is a market.”
New Capital
Amid questions in recent months about whether it was financially viable, Edison last week also announced the completion of a $40 million round of new financing. As previously announced, Merrill Lynch will extend its current line of credit to the company by an additional $20 million. But instead of New York City-based Chelsea Capital providing the other $20 million, that investment will now come from School Services Inc., an affiliate of the investment firm Leeds Weld & Co., also based here.
The final details were being ironed out even as Edison was holding its investor meeting at a hotel here. Several Edison executives said they had pulled all-night sessions working on the Philadelphia negotiations, the financing round, or both.
The company apparently did not want to postpone its meeting with investors, which it had already done in June.
Chip Delaney, an Edison board member now formally joining the firm as vice chairman, has already been working there informally the past 60 days, conducting a financial review that he dubbed a “re- engineering” of the company.
Edison will be ending a number of unprofitable school contracts, he said, several of which have already been disclosed, such as in Boston, Mount Clemens, Mich., and San Antonio.
The company says it will devote increased marketing efforts to a new line of business it calls the “affiliates program,” in which smaller districts, with less than 10,000 students, may hire Edison only for curriculum and teacher-development services.
Edison is also interested once again in the overseas market, and company officials say it has been in serious discussion with a local education authority in Britain to pilot a school design geared to that country’s education system by next spring.
In the Penalty Box
Analysts attending the New York meeting said that they had been hoping for more concrete financial estimates than were discussed at the conference. They said, however, that Edison’s bad news appeared to be behind it, for a least a while.
“Thank God they got the Philadelphia contract done,” said Jeffrey M. Silber, a managing director who follows Edison for the New York City-based investment firm Gerard Klauer Mattison. “It is the biggest contract in the company’s, and the industry’s, history, but it’s been nothing but a disappointment to investors.”
Trace Urdan, an analyst who follows Edison for ThinkEquity Partners in San Francisco, said the company appears to have resolved, for now, doubts that it is viable.
“From the stock market perspective, though, they are going to be in the penalty box for some time to come,” he said. Edison stock stirred little after the positive announcements. On Aug. 1, it closed at 94 cents a share, down 4 cents for the day.
