HERNDON, Va. & MINNEAPOLIS--(BUSINESS WIRE)--Strayer Education, Inc.(NASDAQ: STRA) and Capella Education Company (NASDAQ: CPLA) today announced that they have agreed to combine in an all-stock merger of equals transaction, creating a national leader in education innovation. Strayer will be the remaining corporate entity under which both universities will operate.

Strayer University and Capella University will continue to operate as independent and separately accredited institutions, together serving approximately 80,000 students across all 50 states. Both universities will maintain their separate Boards, be led by their current Presidents and maintain faculty and academic support service positions separately at each respective institution. The combination is expected to achieve corporate level efficiencies that will enable each university to accelerate innovations that improve affordability, and enhance academic and career outcomes for students.

Robert S. Silberman, Executive Chairman of Strayer, said, “We have been admirers of Capella’s innovation and expertise in online education for years. We are delighted to have the opportunity to combine Capella’s capabilities with Strayer’s 125-year heritage of educating working adults. This transaction will enhance our collective ability to deliver better academic outcomes, to more working adults, at more affordable prices.”

Kevin Gilligan, Chairman and Chief Executive Officer of Capella, who will become Vice Chairman of Strayer, stated, “Strayer and Capella complement each other in powerful ways and share cultures that value integrity and innovation. Uniting Strayer University’s degrees in business, including the Jack Welch Management Institute, accounting, economics, and information technology with Capella University’s competency-based flexible degree programs, healthcare offerings, and robust doctoral portfolio will help us better meet the educational needs of students in the modern economy. We are committed to maintaining our standards of excellence across both universities and our non-degreed businesses.”

Karl McDonnell, Chief Executive Officer of Strayer, said, “This combination will allow us to accelerate investment in the educational experience we deliver to students at both universities, while achieving back office efficiencies captured through the merger of our corporate functions. Strayer, founded in 1892, and Capella, founded in 1993, have long been recognized for innovation, distinguished faculties, sought after accreditation and student satisfaction and success.”

Combination Delivers Significant Benefits

Increased Scale:

• The ability to leverage best-in-class processes, support and resources of each respective university will benefit student success and employment outcomes.
• Lower combined corporate expenses position each university to extend the affordability of their offerings and further invest in a world-class student experience and academic outcomes.
• The universities will be able to share best practices to improve academic outcomes and improve service, increasing the attractiveness of each university to students and employers.

Greater Capabilities:

• While the universities will remain independent, students and faculty at both institutions will benefit from Capella University’s competency-based learning infrastructure, assessment capabilities and track-record of improving student success as well as Strayer University’s video and simulation classroom and content capabilities and close relationships with employers.
• Both institutions will work towards allowing students to seamlessly transfer credits between the universities and expect to honor employer discounts from either institution.
• Strayer University’s extensive ground-based footprint creates the opportunity for Capella University to extend its competency-based model into hybrid learning.

Stronger Financial Platform:

• The broader, more diversified product offering of the combined company will provide for a more balanced revenue mix.
• With a strong, debt free balance sheet, and enhanced cash flow, the combined company will be well-positioned to accelerate innovation in key products and services and return capital to shareholders through an expected annual dividend of $2.00 per share following the close of the transaction.
• The merger of the corporate organizations is expected to achieve annual cost savings of approximately $50 million to be fully phased in within 18 months of closing. Of this amount, we expect approximately half will be realized during the 12 months following closing. These cost savings are expected to be achieved through the consolidation of executive and corporate functions, certain marketing capabilities and IT operations.
• The merger is expected to be accretive to Strayer’s EPS by approximately 20% to 25% by 2019.

Transaction Details

Pursuant to the terms of the merger agreement, Strayer and Capella will combine in an all-stock merger of equals with Capella shareholders receiving 0.875 Strayer shares for each Capella share, which represents a premium of approximately 22% to the closing price of Capella shares on Friday, October 27, 2017, the last trading day prior to announcement. Based on the closing prices of Strayer and Capella common stock on October 27, 2017, the implied equity value of the combined company is approximately $1.9 billion.

Upon completion of the merger, which is expected to be tax-free to shareholders of both companies, Strayer shareholders will own approximately 52% and Capella shareholders will own approximately 48% of the combined company on a fully diluted basis.

The combined company’s corporate headquarters will be located in Herndon, Virginia, and the company will maintain a significant presence in Minneapolis, Minnesota, including the headquarters of Capella University and the combined entity’s IT resources.

The transaction has been unanimously approved by the Boards of Directors of both companies.

Management and Governance

Upon closing of the transaction, Robert S. Silberman will be Executive Chairman, Kevin Gilligan will be Vice Chairman, and Karl McDonnell will be Chief Executive Officer of the combined entity. Also upon closing, Strayer Education, Inc. will be renamed Strategic Education, Inc. Its ticker symbol will remain STRA. Strayer’s Board will be increased to 12 directors total – with three to be nominated by Capella.

Approvals and Time to Close

The transaction is expected to close in the 3rd quarter of 2018, subject to customary closing conditions, including antitrust approvals, approvals by the Department of Education, state regulators and relevant accreditation bodies as well as approval by both Strayer and Capella shareholders.

Advisors

Perella Weinberg Partners LP is serving as Strayer’s financial advisor for the transaction, with Kirkland & Ellis LLP serving as its legal advisor.

Morgan Stanley & Co. LLC is serving as Capella’s financial advisor for the transaction, with Latham & Watkins LLP serving as its legal advisor.

About Strayer Education, Inc.

Strayer Education, Inc. (NASDAQ: STRA) is educating a more competitive and qualified workforce by solving higher education's most challenging problems. It includes Strayer University, a regionally accredited institution that delivers affordable degree programs for working adults, and a Top 25 Princeton Review-ranked executive MBA program through the Jack Welch Management Institute. Non-degree web and mobile application development courses are offered through the New York Code + Design Academy. Strayer also transforms the workforces of its corporate partners through customized degree and professional development programs. By deploying innovative teaching methods and technologies that enhance student learning outcomes, Strayer makes it possible for working adults to acquire the skills they need to succeed in today's rapidly changing economy.

About Capella Education Company

Capella Education Company (NASDAQ: CPLA) is an educational services company that provides access to high-quality education through online postsecondary degree programs and job-ready skills offerings needed in today’s market. Capella’s portfolio of companies is dedicated to closing the skills gap by providing the most direct path between learning and employment.