Select Equity is a greater-than 7% holder of Laureate. The firm's filing offers a very interesting valuation-analysis of LAUR. First, Select Equity attacked the multiple comparison between the company and Education Management Corp. (EDMC) offered by management to justify the $60.50 buyout price, arguing "comparing EDMC to Laureate is inappropriate." The firm argued the comparison was inappropriate due to the fact that EDMC was being offered "'less attractive or fewer opportunities," than those currently offered to Laureate. In addition, Select Equity attacked the company's use of EBITDA multiples because "Laureate's EBITDA is significantly understated, as the company has been rapidly investing over the past few years to build its global platform." The firm also attacked the undervaluation of the $60.50 per share buyout price when compared to EDMC saying, "The buyout of EDMC valued that company at 21.5 times calendar 2007 estimated earnings on June 1, 2006. The Laureate deal, expected to close in the summer of 2007, values Laureate at 19.5 times calendar 2008 estimated earnings, or 9% LESS THAN the EDMC multiple. For the reasons discussed above, Laureate demands a higher multiple than EDMC." Lastly, the firm raised suspicion of the obvious conflicts of interest in management-led buyouts "in dealing with private equity suitors, interested members of management, by definition, act against the interests of the company's other shareholders, who are seeking the highest price possible in order to maximize the value of their investment ... the Special Committee's appointment of an interested member of management (Mr. Becker) to solicit offers from other potential suitors created an obvious conflict of interest between public shareholders and the buyout group."

T. Rowe Price owns more than 8% of the company. In this filing, T. Rowe emphasized their belief that the $60.50 buyout price is "significantly below the true long-term value of the company." Therefore, "T. Rowe Price intends to vote against the proposed transaction as, in our opinion, it is not in our clients best interests. We prefer to see LAUR continue to operate as a public company so that all existing shareholders can benefit from LAUR's excellent long-term growth prospects." T. Rowe believes the $60.50 buyout price is unfairly low because "The majority of Wall Street analysts forecast that LAUR will have the fastest earnings growth of any of the publicly-owned for-profit education companies with estimated growth of 25% per year over the next 3-5 years and at least 15-20% growth thereafter ... the proposed $60.50 buyout price values LAUR at 24 times consensus 2007 EPS estimates, which is lower than the U.S. for-profit post-secondary education multiple of 25 times 2007 estimated EPS." T. Rowe also echoed the concerns of Select Equity regarding the buyout process and the potential conflicts of interest which seem nearly inevitable in "management-led" buyouts.

The situation in LAUR is certainly very interesting, in my opinion. If the activists fail, shareholders still stand to roughly break even (after commissions) on the stock. However, if the activists are successful and the company remains publicly traded, large percentage gains are likely to be had by shareholders who have to patience to wait out the process.