BY
 Debra Hale-Shelton
 
ON
3:21 pm
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Stephens Inc. would be paid up to $1.65 million and likely much more in private funds under a contract with the University of Arkansas System for its work on the proposed purchase of the University of Phoenix. 

Most of Stephens’ earnings would depend upon whether the proposed transaction actually happens, and then upon its cost.

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The Arkansas Times obtained the contract from the Arkansas Department of Transformation and Shared Services under the state’s Freedom of Information Act.

The contract and its attachments never refer by name to the University of Phoenix, one of the nation’s largest for-profit chain colleges, but refer to the acquisition effort as Neptune. Phoenix has adopted that term to refer to its potential sale to a nonprofit affiliated with the UA System.

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The contract with Stephens, the UA System’s mergers and acquisitions partner, took effect on Sept. 18, 2021, and runs through Sept. 17 of this year, but can be extended.

The contract says that services “shall include, but not be limited to, analyzing, structuring, planning, negotiating and effecting a merger or acquisition.”

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UA System spokesman Nate Hinkel has said the system’s efforts to have a nonprofit created in August — Transformative Education Services Inc., or TES Inc. — to buy Phoenix began about 18 months ago.

The contract provides that Stephens would be paid $25,000 upon an acquisition and up to $1.65 million once a transaction is completed. The amount could be higher, depending on the transaction’s value.

A Times source has said the prospective purchase price is estimated to be $500 million to $700 million. That would mean more money for Stephens.

A letter from Stephens to UA System President Donald Bobbitt filed with the contract notes: “For example, the transaction fee on a Transaction with a Transaction Value of $850,000,000 would be $5,025,000, calculated as 0.65% of $850,000,000, reduced” by a $500,000 letter-of-intent fee that would have already been paid by the time of purchase.

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The documents filed with the state indicate the UA System’s contract with Stephens would be financed with private funds. The system does not say who would be the source of those funds, though.

Hinkel said in an email today that “negotiations are ongoing and and we are not yet at a stage where a letter of intent is in play.”

Hinkel has previously stressed that the UA System would not be the one buying Phoenix “and no public or university funds would be involved in this potential transaction. The contemplated structure would also not include any remaining private ownership of the nonprofit entity or the University of Phoenix.”

UA System board chairman Cliff Gibson III recently told the Times that a Japanese bank would provide financing for the nonprofit. Gibson said Bobbitt had told him of the matter but Gibson did not know the bank’s name.

Hinkel has said that it’s “premature to comment on any of the details at this point. I suppose it’s also possible that there is more than one financing option that is being considered.”

Hinkel also has said that the goal would be to convert Phoenix gradually to a nonprofit institution. Phoenix currently has about 79,000 students with 99.5% of them online students, according to Phoenix spokeswoman Andrea Smiley.

Regarding the nickname Neptune, Hinkel said, “It is quite common in large business deals where the seller is courting multiple potential buyers and has NDAs [nondisclosure agreements] and other sensitives for the seller to attach a project name so that they can keep the negotiations with the various potential buyers separate and as confidential as possible until a final deal is reached. In this case, the seller attached the name ‘Neptune’ to their conversations involving the UA System.”

Under the agreement with Stephens, the UA System may not even “refer to Stephens’ name or the terms of our engagement without our prior written consent.”

Hinkel said none of the UA System’s board members are Stephens employees.

The University of Phoenix has had its share of problems in recent years.

The Federal Trade Commission, for example, said it received 6,265 consumer complaints regarding the University of Phoenix from Jan. 1, 2017 to Dec. 31, 2022. The FTC provided the tally to the Higher Education Inquirer in response to a request under the federal Freedom of Information Act, and the Inquirer shared the FTC’s responding letter with the Times.

In the letter, the commission wrote, “You should know that the enclosed complaints have not necessarily been verified by the FTC. Therefore, you should make your own judgment about relying on the information provided.”