Adtalem Urged to Freeze Walden Deal While U.S. Probe Pending

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Adtalem Global Education Inc. is being urged by two investors to halt its $1.5 billion acquisition of Walden University until the U.S. Justice Department completes an investigation of the for-profit university.

Engine Capital and Hawk Ridge Partners, which collectively own a 3.9% stake in Adtalem, said in a letter to the company’s board Monday that they believe it is understating the severity of potential violations involving Walden’s nursing program, noting that four agencies are involved in the investigation.

The duo said 18 of 26 for-profit universities it found to have been investigated by the Justice Department faced sanctions or penalties, and over half are no longer in business or were sold in a fire sale. That was the case with DeVry University, which Adtalem used to own, Engine Managing Partner Arnaud Ajdler and Hawk Ridge portfolio manager David Brown wrote in the letter, which was reviewed by Bloomberg.

”Adtalem is overpaying for an inferior and potentially toxic asset, much like the ones the company has tried so hard to divest,” Ajdler and Brown said. “We are deeply concerned by the DoJ investigation and where it may be headed.”

The investors are calling on the company to reveal, during an earnings call slated for Tuesday, the results of its own due diligence regarding the federal investigation.

Representatives for Adtalem, based in Downers Grove, Illinois, and Walden weren’t immediately available for comment..

Nursing Program

Adtalem agreed to acquire Walden from Laureate Education Inc. in September, saying the deal would allow it to substantially scale up in the rapidly growing health-care industry. Three days after the deal was announced, the Justice Department launched its investigation into potential violations of the False Claims Act involving Walden’s Master of Science in Nursing program, according to regulatory filings.

While federal officials haven’t outlined their probe, they appear to be focused on the “practicum component” of the program, Laureate said in a filing.

Engine and Hawk Ridge argue that the consequences of violating the False Claims Act could potentially result in “billions of dollars of penalties,” in addition to possible class-action lawsuits.

‘Grave Mistake’

Engine and Hawk Ridge said it would be a mistake to push ahead with financing for the deal before the Justice Department’s investigation is completed. Raising funds so far in advance of the deal’s closing could result in $81 million in unnecessary interest payments, they said.

The investors said in a previous letter to the board that that were “severely disappointed” with the deal, which they argued had destroyed shareholder value. Adtalem appeared to have overpaid for the company and had also overstated the portion of Walden’s revenue derived from health and behavioral sciences, according to that Jan. 21 letter.

Adtalem responded in a statement that the Walden deal is part of a long-term growth strategy to create a leading workforce solutions provider through strategic investments and the streamlining of its portfolio. To that end, it said it had divested several assets, including Carrington College and Adtalem Brazil as well as DeVry University.

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