Touchstone Applied Sciences (NASDAQ:TASA)
Question: An “Overview Issue” of The Napeague Letter was e-mailed to each subscriber last night. These Overview Issues summarize the current status of each stock followed by TNL. This issue included the following comments about Touchstone Applied Sciences (NASDAQ:TASA):
At its Annual Stockholders Meeting which was held on Friday, March 24th, TASA announced that it has signed a Letter of Intent “to acquire the Drake Business Schools. Drake operates and manages post-secondary schools in the New York City metropolitan area.” The cash purchase price will be $2.5 million, and the acquisition will reportedly add approximately $8 million to TASA’s annual revenues.
The Napeague web site contains hypertext links to the complete press release announcing thsi impending acquisition, and also contains a copy of the speech given at the meeting by Andrew Simon, the Chairman and CEO of TASA. I have also gathered ome additional information about Drake which I will post to the web site within the next hour or two. As I gain additional information I will of course post it to the web site, and I am planning to completely update the TASA Analysis shortly.
Answer: I closely follow for-profit education concerns (CECO, EDMD, CLC, WIX, etc) and – with all due respect – your analysis of the Drake acquisition is clueless!
1. According to the NY Ed. Dept., Drake is in serious trouble, having lost student loans in several locations due to excessive default rates.
2. Sources confirm that the Drake/Elley arrangement was to have been a merger but that Drake could not fund the change of ownership which would temporarily cease financial aid. Elley has also LOST STUDENT LOANS because of high default rates. Elley needed a presence downstate and Drake needed Elley’s degree-granting status to acquire NY State grants for its students who now can’t get student loans. I’ve been unable to determine if Elley goes with TASA but I don’t think so.
3. According to TASA, Drake derives a substantial portion of revenues through management fees of schools that it once owned but converted to non-profit organizations. Doesn’t this cause you some concern?
4. According to NYS Regents, Drake is not a candidate for collegiate status. Drake must compete against numerous schools that are degree granting and can provide their students with considerably more financial aid. The process for becoming essentially a Junior College takes many years.
Only insiders have seen pro-forma consolidating financial statements. On the surface, TASA’s does not justify a bank loan to fund the Drake acquisition. Until you obtain more in-depth information you should be more cautious in your opinions.
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