Apollo Education Group, Inc. (NASDAQ:APOL)

CAPS Rating: 2 out of 5

The Company is an education provider for more than 30 years and operates through subsidiaries: The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International.

Recs

8
Player Avatar shahart (51.61) Submitted: 8/4/2011 10:03:52 AM : Underperform Start Price: $41.87 APOL Score: +88.73

When you are buying a stock, you are basically buying a piece (though usually a very small one) of a business. Thus, a part of the business, its properties, and its earnings, belongs to you.
Right ?
Not in this case, fella.
Allow me to quote from the last 10-K, published on October 22nd 2010, the beginning of item 5 :

Our Apollo Group Class A common stock trades on the NASDAQ Global Select Market under the symbol “APOL.” The holders of our Apollo Group Class A common stock are not entitled to any voting rights.

No voting rights. In other words, you can buy the entire stocks of Apollo, and you still won’t have a say on who runs the business and how to run it, whether to pay dividends (they never did by the way, and they are not planning to either), or any other thing, for that matter.
This is not a stock. It is just a piece of paper, with Apollo’s name on it.

If I were an American citizen, I would urge my representatives to make this kind of a prank illegal. A stock should give you a legal ownership of part of the company, and that comes with voting rights, and it shouldn’t be allowed to be called (and traded as) a stock otherwise.

I don’t know based on what this stock is priced. Apollo may have strong earnings (or not) great balance sheet (or not), and great growth potential (or not). But all that has nothing to do with the stock.

I gave it a thumb down and I am already losing 21 points for it. But I will continue giving it a thumb down, and I will not cease, because as a value investor in heart I know there is only one right price for this paper, mistakenly named as a stock – zero.

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Member Avatar somrh (86.99) Submitted: 10/29/2011 7:03:00 AM
Recs: 0

Nice find.

Take a look at their dividend policy:

"Although we are permitted to pay dividends on our Apollo Class A and Apollo Class B common stock, subject to the satisfaction of applicable financial covenants in our principal credit facility, we have never paid cash dividends on our common stock. Dividends are payable at the discretion of the Board of Directors, and the Articles of Incorporation treat the declaration of dividends on the Apollo Class A and Apollo Class B common stock in an identical manner as follows: holders of our Apollo Class A common stock and Apollo Class B common stock are entitled to receive cash dividends, if and to the extent declared by the Board of Directors, payable to the holders of either class or both classes of common stock in equal or unequal per share amounts, at the discretion of the Board of Directors. We have no current plan to pay dividends in the near term. The decision of our Board of Directors to pay future dividends will depend on general business conditions, the effect of a dividend payment on our financial condition and other factors the Board of Directors may consider relevant."

So if I'm understanding this correctly, they may choose to only pay a dividend for one class (say class B).

The class B shares are controlled entirely by executives and board members:

"Dr. John G. Sperling, our Executive Chairman of the Board and Founder, controls approximately 51% of our only class of voting securities, the Apollo Group Class B common stock. Dr. Sperling’s son, Mr. Peter Sperling, the Vice Chairman of our board of directors, controls the remainder of our Class B common stock. Dr. Sperling and Mr. Sperling together control the election of all members of our Board of Directors and substantially all other actions requiring a vote of our shareholders, except in certain limited circumstances. Holders of our outstanding Apollo Group Class A common stock do not have the right to vote for the election of directors or for substantially any other action requiring a vote of shareholders. In the event of Dr. Sperling’s passing, control of the John Sperling Voting Stock Trust, which currently is a revocable, grantor trust that holds a majority of the outstanding Apollo Group Class B common stock, will be exercised by a majority of three successor trustees: Mr. Sperling,"

I think your call of zero is a pretty good target price.

Member Avatar somrh (86.99) Submitted: 10/31/2011 11:30:36 AM
Recs: 0

Some more follow-up. Later on it claims that there are 4 holders of record for the Class B stock. So I'm not sure who those are. According to the above, father controls 51% and the son controls the rest. But that only accounts for 2 holders.

My big question would be this: Unless board members are granted shares of Class A common stock, what motivation would they ever have to pay out a dividend to the Class A shareholders?

Pop and son decide who is on the board and they control the B shares so if there's any dividends to be paid out, they'll want them. Further, why would they want dividends to be paid out to these pesky, non-voting Class A shareholders?

Perhaps board members have some Class A shares and so that's their incentive. But it's also possible that their board member salaries far outweigh any dividends they might receive from their shares. So their interests may be entirely in line with pop and son.

Member Avatar convexvalue (93.27) Submitted: 7/3/2012 8:27:01 AM
Recs: 0

Anand Chokkavelu (Motley Fool writer) wrote this past week: "In any financial matter, find out what the other person's incentives are. Discount accordingly."
I too, agree with your zero target price

Member Avatar convexvalue (93.27) Submitted: 7/3/2012 8:27:23 AM
Recs: 0

Anand Chokkavelu (Motley Fool writer) wrote this past week: "In any financial matter, find out what the other person's incentives are. Discount accordingly."
I too, agree with your zero target price

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