- Blum Capital Partners cut its activist stake in Career Education Corp. from about 9.4% (~7.14M shares) to roughly 7% (~4.75M shares) through early-2015 sales.
- The trimming followed earlier reductions, marking a continued step-down from what had been one of Blum's larger public holdings.
- CECO faced deteriorating fundamentals and heavy regulatory pressure, including enrollment declines, falling revenue, and recurring losses.
- The smaller position may signal reduced activist influence and bearish sentiment, while potentially opening the door for other investors if valuation becomes attractive.
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This analysis examines Blum Capital’s decreasing stake in Career Education Corporation (NASDAQ: CECO), its underlying motives, and what strategic consequences it may signal.
Stake reduction timeline and magnitude
As of late 2014, Blum Capital held approximately 7.14 million shares (~9.4%) of CECO common stock. A 13F filing disclosed in January 2015 reduced this to 6.36 million shares, retaining the same ~9.4% ownership due to changing outstanding shares. In subsequent 2015 filings, the position was cut further: in February and especially by the March 23, 2015 Schedule 13D, Blum reduced its shares to about 4.75 million, ~7% of shares outstanding. This represents a reduction of nearly one-third over three months.
Business fundamentals and external pressures
CECO has been under stress with a 21% first-quarter enrollment drop year-over-year, negative revenues relative to comparable periods, and operating losses. Earlier in 2013, CECO reported a net loss of US$15.2 million, down from net income the prior year. As a for-profit education company, CECO was exposed to regulatory scrutiny, tighter rules (including “gainful employment” standards), and negative sentiment in Washington and from investors.
Possible drivers behind Blum’s exit
Several explanations suggest themselves: (i) minimizing exposure due to worsening regulatory risk and poor financial performance; (ii) freeing up capital for better risk/reward situations; (iii) reduction of activism leverage – smaller stake reduces ability or incentive to push for change or board control; (iv) perhaps valuation signaling, i.e. realizing losses ahead of worse outcomes.
Strategic implications
Blum’s disarmament may signal to the market that internal confidence is eroding, potentially depressing CECO’s stock valuation further. Other activist investors may see opportunity in stepping in if the company is undervalued and leadership changes are possible. CECO may face increased difficulty in securing favorable terms from lenders, regulators, and in recruiting students. The decreased stake also reduces Blum’s influence – less firepower to effect corporate governance changes, policies, or strategic restructuring. Meanwhile, sharper investors will watch what Blum does with the proceeds: redeployment may favor sectors with lower regulatory risk and clearer financial profiles.
Open questions
- What is CECO’s current cash flow burn rate and capital structure? Can it sustain operations at current enrollment levels?
- Did Blum retain a board seat or control rights after trimming the stake, and what is his governance influence now?
- What regulatory changes (federal or state) have since taken effect that materially affect for-profit education economics?
- Are there other investors preparing to escalate activism or take advantage of a potential “turnaround play” as valuation falls?
- What is the current trend in enrollment and whether the recent decline was temporary or structural?
Supporting Notes
- Blum Capital held ~7.14 million shares of CECO, equal to ~9.4% of its common stock, but reduced to ~6.36 million shares.
- In early 2015, further cuts: as of March 2015, Blum owned ~4.75 million CECO shares, ~7% of common shares outstanding.
- Blum’s equity portfolio was highly concentrated at ~US$578 million in Q4 2014, with CECO among the top positions alongside CBRE and Avid Technology.
- CECO’s first quarter revenues fell to US$340.5 million from US$431.4 million year-over-year, net loss US$15.2 million vs net income US$52.1 million in same period prior year; enrollment down ~21%.
- Historical regulatory pressures include Congressional/DOE investigations into for-profit education sector, gainful employment rules, and specific scrutiny of Career Education’s accreditation and placement practices.
- Blum had trimmed his CECO stake multiple times in 2013, each time reducing his share percentage and seeing large paper losses.