Australian universities sell stake in IDP to offset losses

Headquartered in Melbourne, IDP is one of the world’s largest international education companies and was helped in its setting up by the grouping of Australian universities in the form of Education Australia over 50 years ago. The company had been witnessing downfalls in revenue, before this decision by Education Australia.

The Australian universities held a 40% stake in IDP Education prior to the sale, through Education Australia.

“This has come at a perfect time for universities”

“This has come at a perfect time for universities,” Iain Watt, deputy vice-chancellor and vice-president (International) at the University of Technology Sydney explained to The PIE.

“Australian universities made this investment long time ago and have continued to build and invest in IDP throughout that period. And, clearly, a good time for liquidating your assets is when you are in financially difficult times. The selling of the shares would certainly help us to either offset losses or provide liquidity.”

Previously, Education Australia chairman, Greg West, had said that the transaction represented a significant milestone for Education Australia as well as for IDP.

Australia’s university sector had been involved with IDP Education since its inception and had witnessed it’s growth into becoming a highly successful international education brand over five decades, he reminded.

IDP CEO and managing director, Andrew Barkla, said that the company’s non-reliance on a single market and its diverse business model and long-term strategy, had allowed it to navigate the disruptions during the course of the pandemic, despite having financial downturns.

However, the funds may not by immediately available to the universities as the proceeds from the sale – worth nearly $1.14 billion comprising 15% of the universities’ stakes in IDP – would be used to first cover a massive capital gains tax bill.

Subsequently, the companies would be distributed their share of the remaining 25% of the stake along with franking credits on the tax payment. Thereafter, they will be able to manage their own share packages from their own individual bag, from the overall nearly $2 billion worth of shareholding, as part of their 25% combined stake.

This will also see the dissolution of Education Australia as the very reason for which it was formed would cease to exist.

It is expected that individual universities would be able to sell half of their shares after a period of six months and the remaining half in a year’s time, as per the deal. It is so, also because, they are required to wait for an initial six month period, due to the shares being in escrow.

“Each university will make up their own mind, if and when to sell”

“We’ve got to remember that while the transaction will appear on our P&Ls this year because the shares have arrived, we’re not planning to sell them this year and each university will make up their own mind, if and when to sell,” Watt opined.

“Probably many will sell next year. There is only any real cash impact when you sell the shares, and of course the value of the shares has fluctuated from $60-80 million for a university since the announcement. So, each university will have to make its own call on what’s the best time to sell.”

Leveraging the proceeds of the sale of their shareholdings in IDP might help many of the 38 Australian universities involved offset some of the revenue losses they have been witnessing in the face of a drastic fall in international student numbers.

Sharing his insight on whether individual universities would actually be able to offset some of their revenue losses with this sale of shareholding, Watt pointed out that it was “true for the small universities”.

“So, $60-80 million dollars doesn’t make the same huge difference to larger universities like Sydney or Melbourne, that have a $2.5-3bn turnover, that it does to the smaller universities who have an annual turnover of hundreds of millions of dollars. As, any university regardless of size gets an equal amount of money.”

IDP’s stock price on September 24 at the close was $32.87 on the ASX. The company continues to go strong on the back of its highly successful IELTS English testing module, which it holds one-third stake in, alongside Cambridge University and the British Council.