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State fund buys school operator

If the deal stands, the fund that provides for pensions of Florida public school teachers will own a company that privatizes school management.

By HELEN HUNTLEY
Published September 25, 2003

Florida's state pension fund is investing $174-million in a controversial for-profit school management company.

Through one of its money managers, Liberty Partners, the pension fund has agreed to buy out the shareholders of Edison Schools Inc., taking the New York company private.

In effect, the fund that provides for the retirement pensions of Florida teachers and other public employees will own a company that has played a leading role in privatizing school management.

Liberty's buyout was announced in July, but it was not until this week that the Wall Street Journal reported that the pension fund was the source of the money. The deal is expected to close this year.

Edison is the largest private manager of public schools. The company says more than 80,000 students attend the 150 schools it operates in 23 states, including Florida, under management contracts. It reports improving academic performance at its schools.

But Edison and chief executive Chris Whittle have been sharply criticized for both educational and investment results.

Gov. Jeb Bush, a vocal supporter of vouchers and other alternatives to traditional public education, is one of three trustees for the State Board of Administration, which supervises the pension investments. However, Coleman Stipanovich, the board's executive director, said Bush was not aware of the investment until the Journal reported it.

"The trustees don't get down to micromanaging investments," Stipanovich said.

He said Liberty Partners has full discretion over the $1.8-billion it invests for the pension fund in "alternative investments," such as buyout deals.

"We simply don't interfere in terms of the companies that they invest in," Stipanovich said. "We have a contract with Liberty Partners, and they have full discretion and authority to make investments on our behalf."

Currently the pension board is the only investor in Liberty Partners, but Stipanovich said that may change because the board plans to reduce its allocation to Liberty to provide more diversification for the $92-billion pension fund.

Investors who bought Edison stock lost millions of dollars. The company only recently reported the first quarterly profit in its 10-year history, primarily the result of a property sale. The company's stock, which peaked at $36.75 a share in 2001, fell to as low as 15 cents last year. It closed Wednesday at $1.70. Numerous shareholder lawsuits are pending.

Critics say the poor results counter Edison's premise that it can operate public schools more efficiently and effectively than school boards can.

School employees' unions have been particularly critical of the company, with the American Federation of Teachers publishing its own report disputing Edison's claims of academic achievement.

The Service Employees International Union is asking the Florida Legislature to denounce the Liberty-Edison transaction. The union said it decided to oppose the deal after finding out that the Florida pension fund was the investor behind it.

The plan to take the company private calls for Liberty to provide $104-million to buy up the outstanding stock at $1.76 a share and $70-million to repay debt.

"Liberty believes that Edison will continue to be the leader in the K-12 sector of education in the United States," Liberty Partners president Peter Bennett said at the time the deal was announced.

Whittle and other managers would continue to run the company. A previous Whittle venture, Channel One, put television sets in schools to broadcast a specially produced news program with targeted advertising.

- Helen Huntley can be reached at Huntley@sptimes.com or 727 893-8230.

[Last modified September 25, 2003, 01:34:29]

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