More Colleges Are Seeing the Virtues of Merging

When the lights start going out in offices in the Loop skyscrapers, the hallways at Roosevelt University and National-Louis University, two colleges just three blocks

apart on nearby South Michigan Avenue, begin to buzz.

Their most reliable students arrive, city people looking for the degree that could help them get a promotion, or change their careers altogether. So closely do they seem to be intertwined that when National-Louis abandoned a building three years ago to move to new quarters down the street, Roosevelt quickly took over the vacated space.

Few would have thought that these two institutions -- both proud of their own tra ditions and identities -- would one day become one.

But driven by their trustees, the universities, each with more than 7,000 students, are holding talks that could lead to a merger. If they decide to combine, they would produce one of the largest colleges ever to result from the union of two institutions.

The talks come in the midst of a wave of collegiate mergers that appears to be picking up steam. Since November, six mergers of higher-education institutions have been announced. At least three more are in the talking stages. Privately, some who work in the field acknowledge that there are talks taking place between some other private colleges, where students, alumni, and faculty members have no idea that they are going on.

Thus far, the mergers that have been announced have picked off the weak institutions: The smallest of liberal-arts colleges, and some specialized institutions.

Why merger? It’s a last-ditch effort to retain some identity for a college before the gates slam shut for good. Last year, two small New England liberal-arts colleges, Bradford in Massachusetts and Trinity in Vermont, closed the books on a combined 272 years of history.

The small colleges are being hurt by a number of trends: the bear market on Wall Street, the tendency of students to want to go to larger, better-known institutions to get a brand-name degree, inroads by for-profit institutions, increasing competition from state universities,

which are opening honors colleges that attempt to replicate the small-college experience, and the desire for a job-specific rather than a liberal-arts education.

That helps explain why Barat College, long the Roman Catholic women’s college of the wealthy North Shore here, is ending 143 years of independence. It will be subsumed by DePaul University.

And why New York’s Marymount College, a Catholic women’s college in Westchester County, will soon be no more. The institution, founded in 1907, will be consolidated with Fordham University by July 2002.

Experts believe the trend will only accelerate -- toward more mergers, and more closures.

“There are a fair number of colleges where mergers or acquisitions are not going to be enough,” says Gerald B. Finch, a Stillwater, N.J.-based higher-education consultant who is the former vice provost for budgets and planning at Columbia University. “There’s some colleges out there you just know won’t be around five to eight years from now.”

How many? “Dozens,” Mr. Finch believes.

He bases his prediction primarily on some recent contracts he has taken. For example, a bond-insurance company hired him to sit in on meetings at a college whose bonds it had guaranteed “to make sure it stayed open so they wouldn’t lose their investment.”

Even the leading representative in Washington for small colleges, Richard Ekman, president of the 490-member Council of Independent Colleges, says, “I think mergers are going to accelerate. Everything has changed -- the costs are higher, the competition is tougher. I think any school of fewer than 3,000 students has to work very hard to make the numbers come out.”

Mr. Ekman encourages colleges to consolidate activities whenever possible, such as by setting up buying cooperatives, sharing library resources, or using one staff to do accounting, payroll, and other paperwork for multiple institutions.

The economic strains are forcing struggling colleges to get more creative, says Richard Kneedler, president of Franklin & Marshall College. He thinks many may stump the so-called experts with their survival skills.

“There is a great deal of resilience in small private colleges,” says Mr. Kneedler. “One ought not write them off. Each of these colleges exists because it serves a population -- a community or communities -- it has a personality, it serves a niche, or it came out of a religious history with a mission that has served the test of time. As long as a college keeps in touch with that, it has a good chance of continuing.”

Franklin & Marshall is, itself, the result of a merger of two colleges -- in 1853. It is healthy financially, with about 1,900 students, an annual budget of about $70-million, and an endowment of $300-million.

There are perhaps hundreds of colleges with far fewer resources that could be in danger of closing or merging, some researchers believe.

Gordon C. Winston, a professor of political economy affiliated with the Williams College Project on the Economics of Higher Education, says recent research shows that the break-even point for many small colleges is about 1,800 students, unless the college has a large endowment, such as the one where he teaches. There are 844 private institutions in the United States with fewer than 1,800 full-time equivalent students, according to research provided by the Williams center.

John C. Nelson, a senior vice president at Moody’s Investors Service, a bond-rating agency, categorizes the most troubled institutions, all other factors being equal, as those with $20-million or less in annual revenue. Moody’s research shows there are 929 private colleges and universities that size.

The possible Roosevelt combination with National-Louis is proof that it is not only the tiny, financially feeble college that may be subject to consolidation. While neither has a lot of change in its pockets, they aren’t in danger of closing.

“Neither institution is compelled to do this, which makes it more tricky,” says John Jeffry Louis, the chairman of the National-Louis trustees. He is also chairman of Parson Capital Corporation, a venture-capital investment partnership. “These are two institutions down the street from one another, who are serving similar, but not the same, communities, with similar missions and similar values.”

Yes, he is a member of that Louis family. His uncle, Michael, gave a $33-million gift to the institution, and it changed its name in recognition in 1990.

Roosevelt and National-Louis are retail education at its finest -- night classes for part-timers, locations in suburban office parks, and professors who long ago got used to the idea of traveling hundreds of miles per week to teach classes in local elementary schools or storefronts, wherever the students are willing to meet.

Roosevelt has one dormitory, with a capacity of 300 students, downtown. National-Louis has one dorm, for 200 students, at the campus in Evanston.

At first glance, the two institutions seem complementary. Roosevelt has a broader undergraduate program, particularly in the liberal arts, and it has a college of performing arts. The main campus is in the building it acquired when it began in 1945, a restored former five-star hotel designed by Louis Henri Sullivan, using Frank Lloyd Wright as his head draftsman. It is wrapped horseshoe-like around the 4,000-seat Auditorium Theater, one of the largest theaters in the Midwest.

It is an eclectic mix. The stained-glass inlays inside rectangular wooden boxes on the landings of the central staircase are reminiscent of Mr. Wright’s later work. Bassoon and tuba recitals blast from behind the closed doors of long, narrow hallways. In another wing, the smell of formaldehyde drifts from the biology laboratories. The building aches for updating, and Roosevelt estimates that it needs $60-million worth of work.

National-Louis is known mostly for its National College of Education, which specializes in graduate programs. It only added its two other schools, the College of Arts and Sciences and the College of Management and Business, in the 1980’s. The college of education has strong ties to Chicago Public Schools. Three professors conceived and opened Best Practice High School, a leading laboratory for teaching innovation in Chicago’s disconsolate West side. Graduates head to some of the country’s leading universities.

Roosevelt opened a campus in 1996 in the burgeoning suburb of Schaumburg, and it enrolls nearly as many students there as on the downtown campus. National-Louis has taken the suburban ambitions of Roosevelt, and gone much further. It has four suburban locations, west and north of Chicago. Plus, it has degree-granting campuses in Atlanta, Milwaukee, Orlando, Fla., St. Louis, Tampa, Fla., and Washington, as well as a campus in Heidelburg, Germany.

But combining the universities, with the considerations they must take into account of tenure, differing curriculums and grading standards, differences in pay, and just flat differences in culture, will be akin to delicate surgery.

“A university is more than a corporation, more than stock and soup to sell,” says David Hobson, a professor of interdisciplinary studies in education, and chairman of the Faculty Senate at National-Louis. “A university is a pattern of relationships. It’s not about accumulating credit hours, it’s about doing something in the world.”

Ralph M. Bradburd, chairman of the economics department at Williams, and a scholar of corporate mergers, says he sees many possible advantages to a collegiate merger. All of the redundant services offered by both colleges’ administrations, such as accounting, plant maintenance, and registration, could be combined. A merger could reduce marketing costs, and could allow the new university to charge more for tuition, because it would no longer have to compete on price with its close rival. Also, the combined institution could sell any underutilized space, and save by having larger classes that would be made possible because it would be pulling from a bigger pool of students.

However, unlike at a corporation, where all decisions can be explained by doing what is best for shareholders, a large university merger would have many more constituencies to satisfy.

“If one school feels it is being exploited or hollowed out in a way that leaves the administration of the other school in charge, there could be a lot of upheaval,” says Mr. Bradburd. “What they have to worry about is disaffected faculty members expressing their disaffection in the classroom. That would be fatal.”

Given the importance that both institutions place on appearing to be equal partners, James J. Mitchell III, chairman of the Roosevelt Board of Trustees, has been notably bullish in advancing the argument that his is the stronger of the two.

Appearing at a faculty meeting in February, Mr. Mitchell said the combined institution would be known as Roosevelt National University. He said that he would be the chairman of a combined board of trustees. The Louis name would be attached, he said, to the combined education college.

“We will begin with the Roosevelt governance structure as the basis for governance of the combined institution,” he said.

Asked about the comments in an interview, Mr. Mitchell, president of worldwide operations and technology for the Northern Trust Company, says, “They were not intended to mean Roosevelt won. It is human nature to think my family is better than your family; it is human nature to think our instructors are more gifted than your instructors. This will hopefully be a spiritual merger of two equal organizations.”

Mr. Louis, told of Mr. Mitchell’s remarks, appears surprised -- and perturbed.

“None of those decisions have been made,” he says over and over again when asked his response.

“Little things mean a lot to people: Who’s in charge? What’s the name of the institution? Culturally, you have to take the steps, and symbolically you have to take the steps to indicate equality,” he says.

“If it becomes evident that National-Louis is being seen as the weaker partner, then we won’t do it.”

The balance sheets make it appear that Roosevelt is on stronger financial footing.

Boosted by recent fund-raising success, Roosevelt has an endowment valued at $38-million. Its revenues last year were $61.6-million, about 78 percent of that from tuition. It ran a surplus of about $5.5-million.

National-Louis, despite the large gift more than a decade ago, now has an endowment valued at just $14.8-million. It had a $4.4-million deficit in the 1995 fiscal year, and a $605,000 deficit in the 2000 fiscal year. The 1998 and 1999 fiscal years were both strong, with surpluses of at least $2-million, but in every other year in the last decade, the university finished barely in the black, with surpluses each year of less than $700,000. The institution had revenue last year of almost $80-million, but 90 percent of that came from tuition.

In a candid cover letter to the National-Louis self-study for its upcoming accreditation visit, the president, Curtis L. McCray, says the institution was “in serious trouble” when he arrived in 1998. He found no central accounting systems, no complete list of alumni, no marketing or development offices, no senior academic officer, not even an assistant to the president “to tell me where the secrets were kept.”

But National-Louis has something that Roosevelt does not: real estate. National-Louis’s network of campuses in the suburbs and around the nation would be prohibitively expensive for Roosevelt to duplicate. National-Louis owns four of its campuses and leases the rest.

Breaking the deal down, Mr. Mitchell sees it quite simply: The National-Louis College of Education is clearly the dominant program, and will absorb the Roosevelt College of Education. Conversely, Roosevelt’s College of Business and College of Arts and Sciences are both stronger than their counterparts at National-Louis, and would be the dominant programs after a merger.

It assuredly won’t be that easy.

The Roosevelt chapter of the American Association of University Professors has passed a resolution expressing “serious reservations” about the potential merger.

“We are dismayed that trustees have given the university community little solid information and have focused initially on finances instead of academics,” the resolution reads. “Academic issues must be our first priority if we are to consider such an important possibility.”

The chairwoman of the A.A.U.P. chapter, Linda Jones, an associate professor and director of the School of Communication, says, “I’m not averse to the idea of a bigger university,” but faculty members are apprehensive that the administration will try to stretch the faculty even thinner.

For example, there are about 200 students majoring in marketing communications at Roosevelt, but the program has only three faculty positions.

“And the untenured faculty -- you can imagine they are in a sweat,” Ms. Jones says.

As of now, the talks have not gotten detailed enough to offer job guarantees, says Mr. Mitchell.

“If you are doing a good job in the classroom, and you are respected, and doing all the things you should be doing, if you want to throw your hat into the ring of a combined university, you should be viable,” he says.

Meanwhile, in Lake Forest, 30 miles to the north, a more typical college merger is taking place.

The old gray lady, Barat College, is looking toward a future it wasn’t sure it would have. For years, faculty members say, the blood was being drained from the college, as enrollment lagged at about 850 students.

“We are a wonderful school that has done nothing but struggle,” says Paul Hettich, a psychology professor and dean of behavioral and social sciences. He has taught at the college for 30 years. “Those of us in administration learned we were going to be using the last of our endowment this year. The implication was, if things didn’t turn around very quickly, it didn’t seem that there would be any alternatives, other than to close. We had used up our lines of credit.”

Sheila A. Smith, the chairwoman of what was Barat’s Board of Trustees, says the college may have lasted beyond this year, but not much longer. In a series of gut-wrenching board meetings, starting two years ago, she says she laid out her belief that Barat could not survive on its own. It had an endowment of only $1.8-million.

“We took a hard look at Barat, and we realized our value was in our students, and our hard assets,” namely the 22-acre campus in one of Chicago’s most desired suburbs. “It forced us to think much sooner than later about what we could do.”

Barat began casting about for a partner, considering other small private liberal-arts colleges, including nearby Lake Forest College. It settled on DePaul, which, with 20,000 students, is the largest private university in greater Chicago. Historically known for its downtown location, DePaul has built up its residential campus in the Lincoln Park neighborhood of Chicago, and has been building a series of suburban campuses, much like National-Louis. DePaul has only a tenuous toehold in the northern suburbs, a campus at an office park about two miles away from Barat.

But this was more than a real-estate deal, says Richard J. Meister, executive vice president for academic affairs at DePaul.

“We realized early on that we have a common culture,” he says. “Despite its size, DePaul is not a major research university -- it has only four doctoral programs. We wanted to protect the traditions of the Sisters of the Sacred Heart,” the order that founded Barat.

DePaul and Barat faculty members are working to create an entirely new curriculum that will be offered at Barat. It will be rooted in interdisciplinary studies, with titles in a working draft like “leadership and values,” and “humanities and communication studies.” The idea is to create a small liberal-arts college within DePaul, and cloister it away from the urban atmosphere that characterizes the rest of the institution. It will retain the Barat name, and become DePaul’s ninth college.

Also, when DePaul’s lease runs out at the nearby office park in two years, it will move those classes over to the Barat campus. DePaul hopes to quickly begin using the dormitory space now vacant at Barat for as many as 250 students.

DePaul has agreed to hire all 40 Barat faculty members, 24 of whom are tenured. In July, they will be added to DePaul’s faculty. Barat has guaranteed that any student enrolled there will be able to graduate from Barat with a degree from the college, and it is even recruiting students to enter this fall. So Barat, in its present form, will not be phased out completely for another four years. DePaul is also adding three of Barat’s former trustees to its trustees.

That is not to say that all has gone forward without pain. DePaul announced early on that students would be able to choose whether to receive a diploma from Barat or DePaul, but had to rescind that after protests were raised by accreditors and the Illinois Board of Higher Education, which said that as long as Barat remains a separate entity its diplomas must not come from DePaul. Although the merger was finalized on February 1, Barat students have been unable to use DePaul’s libraries, computer system, or athletic facilities.

“We’re not as clear as we could be in terms of communications,” Mr. Meister admits. “We never anticipated some of these questions, and we’re hesitant to give a definitive answer.”

Barat also decided to close its small but popular dance program, too late in the year, in some cases, for students to get an audition at another college.

“They said they made the decision last fall to close down the dance program, but they never told me until January,” says Brittany Walk, a sophomore from Buffalo Grove, Ill., who transferred to Barat from Arizona State University. “There were all these other colleges I could have gone to.”

Those concerns aside, some experts in higher education applaud Barat’s trustees for facing up to the inevitable.

Mergers are “probably something colleges should have thought of five years ago,” says Mr. Finch, the consultant. “If there was a textbook for higher-education mergers, it would say two institutions should merge when they are not in financial duress. It should be done when both can see strategic advantages.”

In today’s student climate, two neighboring small colleges that look to merge will likely have to face very difficult choices, such as closing one of the campuses and selling it, says Mr. Finch. It is a loss of identity that many institutions may not be able to stomach.

Margaret M. Healy, president of Rosemont College, a Roman Catholic women’s college just outside Philadelphia, says she is applying for a grant to study how her institution and the two other Catholic women’s colleges in her area, Chestnut Hill and Immaculata, can cooperate. (Immaculata has declined to participate in the study.)

“A possibility would be to have a single one of us, rather than three of us,” she says. “But that is only one possibility.”

If that sounds too harsh, consider the alternative, says Mr. Hettich, the Barat psychology professor.

“Don’t go as far down as we did. Don’t let political divisiveness get so deep that you are willing to just let the college close. Don’t get into cost-cutting so harsh that you can’t get the proper materials any more. Don’t let the buildings get so run down that they become unattractive.”

Barat, he surmises, will be a very different college in, say, two years, but at least “there is still a place for students to go to school, tenured faculty still have a job. We survive -- at least, in some way.”

http://chronicle.com Section: Money & Management Page: A26