Activist investors are calling on Adtalem Global Education to try to end its planned purchase of Walden University, a for-profit online college.
Two investment firms, Engine Capital and Hawk Ridge Partners, wrote in an open letter dated Thursday that they were "severely disappointed" with the board's decision to purchase Walden, calling the college a "substantially inferior asset."
They suggested that a federal investigation into Walden over allegations it misrepresented one of its programs gives Adtalem an opening to abandon the deal.
Adtalem announced plans in September to buy Walden for $1.5 billion in cash from the university's parent company, Laureate Education. Officials at the acquiring company billed the deal as a way to help meet the growing need for healthcare workers.
A few days later, Laureate told Adtalem that the U.S. Department of Justice and several other government agencies were investigating whether Walden misrepresented aspects of its nursing program to students and an accreditor, according to SEC filings.
Adtalem launched its own probe into the allegations and is evaluating whether the situation will impact the deal, Lisa Wardell, the company's CEO, told analysts in November.
The investors, in their letter, called the investigation a "blessing in disguise," contending it provides a way for Adtalem to back out of the arrangement. The investors also recommended that Adtalem's board form a committee to oversee the Walden investigation.
The letter prodded the board to make other major changes, including restructuring management and selling its medical schools and financial services assets. Doing the latter would free up Adtalem to focus on nursing education under its Chamberlain brand, the investors suggested, arguing the move could benefit the company if it can't nix the Walden deal.
Adtalem said in a statement Thursday that the company's board and management have recently met with the investors and will consider their views. It reaffirmed that purchasing Walden would improve the company's offerings.
The investigation could complicate the deal, however. In November, Walden's accreditor, the Higher Learning Commission, placed the university under its governmental investigation designation, which requires institutions to submit regular reports about their financial or legal situation or undergo other special monitoring, according to its website.
HLC must also approve the university's substantive change application for Adtalem to take ownership, but its website notes that institutions facing government investigations won't be considered unless they can prove there is a "compelling reason for the change."