Sachem Head to Push For Sale of Education Company 2U

(Bloomberg) -- Activist investor Sachem Head Capital Management LP has built a position in education software provider 2U Inc. and plans to push the company to explore strategic alternatives, including a sale, according to people familiar with the matter.

The New York hedge fund, run by Scott Ferguson, is now one of the 2U's top shareholders, the people said, asking not to be identified because the matter is private. The exact size of Sachem Head's stake could not be learned.

2U rose as much as 15% in New York trading Monday, its biggest gain since 2016, according to data compiled by Bloomberg. The stock was up 11% to $20.65 at 10:15 a.m., giving the company a market value of about $1.3 billion.

The activist believes the company, which helps universities launch online masters degree programs, would be an attractive takeover target for private equity firms or other education technology companies, the people said.

A representative for Sachem Head declined to comment. A representative for 2U wasn't immediately available for comment.

2U has seen its shares fall more than 70% over the past 12 months. Its shares dropped about 65% on July 31 after it reduced its forecast for the third quarter.

The company has been making some changes in management lately. It appointed former Neustar Inc. executive Paul Lalljie as chief financial officer in October and postponed a planned investor day on Nov. 6. Last week, it appointed former SeatGeek Inc. executive Jennifer Ogden-Reese as chief marketing officer.

2U's corporate governance practices have come to the attention of shareholder advisory firm, Institutional Shareholder Services Inc. ISS recommended in June that shareholders withhold their votes for all directors standing for election partly because of the board's failure to implement a shareholder proposal calling for changes to its voting procedures that received nearly 87% support from investors the previous year. Two of the directors, Timothy Haley and Valerie Jarrett, faced significant withhold votes from shareholders at the meeting.

Despite the governance concerns, Sachem Head considers 2U to be a top software provider in the space with a high-quality portfolio of academic partners including Yale University, Northwestern University and Vanderbilt University, the people said. It believes the company's troubles stem from communication issues and a failure to meet its earnings forecasts rather than problems with the underlying business, they added. The people noted that 2U keeps winning customers, including its first undergraduate degree partnership in August with the London School of Economics and Political Science.

2U is the second education software company that Sachem Head has targeted. The hedge fund has also built a position in a company of similar size, Instructure Inc., and is advocating for a strategic review there, the people said. The 2U and Instructure investments are not related, they said. A representative for Instructure couldn't be reached for comment.

Sachem Head was founded by Ferguson in 2012 after he left activist Bill Ackman's Pershing Square Capital Management.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editor responsible for this story: Liana Baker at lbaker75@bloomberg.net

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