K12 Inc. to Create New Company With Investor Group

Associate Editor

UPDATED

Major changes are underway at K12 Inc., the largest for-profit provider of online learning, which announced plans on Jan. 7 to form a new company with an investor group, while also releasing news about several top-level executive changes.

K12, a publicly traded company based in Herndon, Va., and the investor group led by Safanad Limited, a global principal investment house based in New York and Dubai, said the new company would focus on the expansion and integration of technology-based learning programs in pre-K through college across the globe, according to an announcement from K12. The plan is to manage and expand several existing early-stage businesses and targeted investments within the education services sector.

Ron Packard, founder and former CEO of K12, has resigned to lead the new business, but will stay active on the board of K12. Nate Davis, who has been executive chairman since January 2013, has been appointed as K12’s new CEO and will continue to serve as its chairman of the board.

“This is part of a progression that has been going on for awhile, to transition from a start-up, entrepreneurial culture into a more scalable, mature organization,” said Trace A. Urdan, a managing director and a senior analyst at Wells Fargo Securities in San Francisco. “The stock reacted well today,” he said on Jan. 8, a day after the announcement. The 4.8 percent jump in price indicated that investors liked the changes, he added.

Under the proposed terms, the investor group led by Safanad Limited would own a majority stake in the new company. K12 would own an initial minority stake in the company greater than 25 percent and would contribute:

  • The International School of Berne;
  • Capital Education;
  • Its interest in an existing Middle East joint venture currently operating with a Safanad affiliate;
  • The United Kingdom businesses that K12 recently launched;
  • The rights to market K12’s new pre-kindergarten product, EmbarK12 outside the U.S.; and
  • Other select assets and licenses.

Taken as a whole, the K12’s assets were responsible for $20.8 million in revenue and had direct operating losses of about $3 million for K12’s fiscal year ending June 30, 2013.

More details will be announced in coming weeks, the company indicated in its release.

Besides these changes, K12 announced two new additions to its executive management team in a separate release. Tim McEwen will serve as K12’s new executive vice president, for curriculum, product and market development. McEwen most recently was CEO of Archipelago Learning, an online curriculum and assessment company that was acquired by Plato Learning. Chuck Sullivan is K12’s new executive vice president, chief marketing and enrollment officer. Sullivan was most recently Most founder and principal at CCS Advisory Services LLC, a consulting firm.

K12’s stock price dipped precipitously in October when the company announced it wouldn’t meet enrollment targets.

On Jan. 6, Darcy Bedortha, a former teacher for K12, wrote about her experiences within the company in an Education Week Teacher Living in Dialogue blog post. She described pressures to meet enrollment targets, the types of students she taught, and how much teachers earn at K12. According to Bloomberg Businessweek, Davis’ calculated compensation exceeded $9.5 million in 2013.

This blog post has been updated to include comments from Trace Urdan.

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