Heinz former CEO poised to become EDMC chairman

| Thursday, Oct. 3, 2013, 11:48 a.m.

Education Management Corp., which has been hammered by a string of losses amid sagging enrollment and increased government scrutiny of its business practices, has tapped former H.J. Heinz Co. CEO William Johnson to become its next chairman as the company seeks to turnaround its finances and improve its reputation.

The nation's second-biggest operator of for-profit colleges said Thursday that it has nominated Johnson to replace Todd Nelson as head of its board. EDMC said shareholders will vote next month to install Johnson as non-executive chairman.

Johnson, who led Heinz for 15 years and was credited with turning it into a global powerhouse in the food industry, won't have a hand in day-to-day operations at EDMC, but will guide the company as it tries to grow student enrollment and chart a strategy for dealing with competitive pressures and issues that have hampered its success.

“You're just talking about someone who obviously has world-class business experience,” Wells Fargo Securities analyst Trace Urdan said of Johnson.

Urdan noted that Johnson's experience in marketing would likely be most relevant to his work with EDMC, which has been hurt by a perception that the for-profit college industry is predatory and exploits students. The industry has been criticized for saddling students with debt and disregarding their prospects for success.

“Heinz, during his tenure, had a terrific track record of expanding its presence on store shelves,” he said. “It's not direct correlation, but they're (EDMC) trying to think more creatively about marketing.”

Johnson was replaced as CEO of Heinz following the ketchup maker's $28 billion acquisition in June by Warren Buffett's Berkshire Hathaway and Brazilian investment firm 3G Capital. He inherits a role to which Nelson was promoted in 2012 after serving as CEO of the education company for about five years.

Nelson is stepping down from the board, the company said. He is among several recent leadership changes by the company. In June, the company announced the resignation of chief accounting officer Randall Killeen and John Mazzoni, president of Education Management's Art Institutes unit.

“The subtext here with investors is: ‘We're doing business a different way now,' ” Urdan said of Nelson's departure.

Neither Nelson nor Johnson was available for comment, EDMC spokesman Tyler Gronbach said.

Nelson presided over strong growth as EDMC expanded student enrollment and its number of schools across the country. But government probes into the company's recruitment tactics and reliance on federal student aid, part of an industry-wide examination of for-profit college operators, led EDMC to scale back its growth, Urdan said.

And that has led to a falling stock price and losses.

Nelson's “tenure was characterized by aggressive growth, but that's growth that they're now kind of backing away from,” Urdan said.

The company also announced Wednesday that it nominated retired Air Force Gen. Lester Lyles as a board member.

Lyles, who served in the Air Force for 35 years and was director of the Ballistic Missile Defense Organization at the Pentagon, should give credibility to EDMC's efforts to attract more veterans — and their G.I. Bill education dollars — as students, Urdan said.

Having a general on the board could help ease worries that some for-profit colleges exploit veterans, he said.

EDMC operates 110 schools in 32 states and Canada, including the Art Institute of Pittsburgh. It employs 23,000 people, including 2,400 in Pittsburgh.

Sagging enrollment and increased scrutiny have weighed on the company.

EDMC reported a net loss of $268 million for its fiscal year ended June 30, which was an improvement over the $1.52 billion loss it recorded the year before. It has projected it would lose between $11 million and $12 million in the July-September quarter. It plans to report results Oct. 31.

The Securities and Exchange Commission has been investigating the company's accounting practices. The SEC has subpoenaed documents and information related to the corporation's valuation of goodwill and its allowances for bad student loans, according regulatory filings. Goodwill is the price, or premium, paid for an asset above its true value.

The federal government and 11 states had sued the company for the return of more than $11 billion paid in federal student aid over several years in a whistle-blower lawsuit claiming that EDMC improperly paid recruiters based on the number of students they enrolled.

EDMC's shares closed Thursday at $9.25, down 24 cents.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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