Tuesday, August 7, 2001

UNext Seeks to Restructure Its Relationships With Universities By GOLDIE BLUMENSTYK UNext is asking the prestigious universities that are its academic partners to restructure their agreements with the company. Details about the request are sketchy. But it comes amid talk that one of UNext's biggest investors, the Thomson Corporation, is asserting greater control over this prominent player in the distance-education business. Some are even speculating that Thomson is close to buying UNext altogether. UNext has indicated to the universities that it is seeking the change to promote "its continued ability to raise financing," said Sam Steinhardt, chief finance officer of learning technology at Stanford University. Stanford is one of UNext's academic partners, along with Carnegie Mellon University, Columbia University, the London School of Economics and Political Science, and the University of Chicago. Mr. Steinhardt said he did not know what kinds of changes the company would be seeking. The universities help develop the business and technology-oriented courses UNext offers. UNext has also created its own institution, Cardean University, to award degrees. Several sources familiar with the distance-learning market have speculated that UNext will try to get its academic partners to reduce the amount of money UNext has guaranteed to pay them. Although the deals are confidential, the payments have been widely reported to be worth about $20-million for each partner, over a number of years. The academic partners are also entitled to ownership stakes in the company -- collectively worth about 20 percent -- if UNext were to go public. A UNext spokeswoman said the company's president, Andrew M. Rosenfield, would not comment on money matters, and she noted that UNext is private and under no obligation to discuss its finances. The spokeswoman, Jennifer Karras, did acknowledge that UNext was finding this "a very difficult period" in which to raise capital, but she said the company was enjoying support from its multiple financial partners. "They believe in what we're doing," she said. Some leaders in the distance-education industry are theorizing that Thomson is interested in UNext because of its highly regarded technology for delivering courses. But they also wonder whether the publishing giant will want to continue working with the universities -- and paying them -- or if it will simply opt to use the platform for its own content. Thomson "can generate content without paying through the nose for the brand," said one distance-education leader, who asked not to be named. UNext has invested heavily in developing its courses and platform, spending as much as $700,000 per course in some cases. A Thomson spokeswoman said speculation about a UNext acquisition by Thomson was just that. "There aren't any firm or final decisions about what Thomson's relationship with UNext will be," said Kristen McCarthy, a spokeswoman for the Thomson Learning, the division that handles textbooks and e-learning products for the Toronto-based publishing giant. Thomson's president and chief executive officer, Richard J. Harrington, joined UNext's board of directors in March, when Thomson announced a "strategic alliance" with UNext. Thomson has invested $38-million in UNext and pledged an additional $18-million in credit, convertible to stock at Thomson's option, according to a private placement memorandum about the deal. Ms. Karras said UNext had raised a total of $180-million. The company began in 1997, under the auspices of a venture tied to Michael Milken, the controversial financier. Mr. Milken has no voting rights in the company. Background articles from The Chronicle: Rich in Cash and Prestige, UNext Struggles in Its Search for Sales (5/4/2001) A Company Pays Top Universities to Use Their Names and Their Professors (6/18/1999) Closely Watched UNext Rolls Out Its First Courses (5/12/2000) Easy-to-print version E-mail this article

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