Poor university due-diligence puts Westminster at risk 

Letter to the Editor,

Recently, General Electric (GE) terminated its CEO after just 14 months on the job. GE’s bonds hover around junk-bond status and its stock continues to plummet amid concerns about the company’s profits and prospects.

What does GE’s plight have to do with Rider University?

Rider’s president and board have selected a company, Kaiwen Education Technology, in far worse shape than GE to buy world-renowned Westminster Choir College (WCC)—this despite repeated claims to the contrary and a promise to find a partner with a solid financial history and the means to support the college going forward.

The president and the board also pledged to locate a new Westminster owner based on its reputation, history and quality as an institution. 

Yet, Kaiwen Education has absolutely no experience in higher education, operates two K-12 schools in China at about 15 percent of enrollment capacity and has not yet graduated a single student.

Comments made by the company’s chairman this fall and teacher reviews reveal that the schools are a long way from achieving the status claimed for them in company press releases.

How bad are Kaiwen Education’s finances?

In July, China’s Shenzhen Stock Exchange required Kaiwen’s Board to explain the continuing losses that plague the for-profit company.

In 2016, Kaiwen’s net loss was 31 percent of its revenue. 

In 2017, following three straight quarters of losses, its net loss would have been 20 percent of revenue had the company not sold assets from its prior business—a steel fabricating business—to earn a small profit. 

Non-recurring income like this is always ignored by investors and financial analysts. 

For the first three quarters of 2018, Kaiwen reported a significant net loss of 46 percent of revenue and much poorer performance compared with the first three quarters of 2017. 

Incredibly, Kaiwen projects its losses to continue, predicting a significant loss for 2018. 

In August, Rider’s administration defended Kaiwen’s viability, noting it had about 25 million dollars in cash on hand. Unstated was the fact Kaiwen’s short-term financial obligations were five times that size. Debts of that magnitude would keep most CEOs and their boards up at night. 

The administration also asserted Kaiwen could raise funds by issuing new stock and clearly implied that proceeds of about 153 million dollars from a planned new stock issue would be available to meet Westminster’s needs. 

However, Kaiwen’s 2018 semi-annual report and press releases indicate this revenue will be used exclusively for projects relevant to its K-12 schools in China, including the three new schools it plans to open. 

This new issuance of shares plus Kaiwen’s declining penny-stock price—$1.22 a share on Oct. 31, which is hardly a sign of investor confidence —makes the additional issuance of shares unlikely.

How does Kaiwen survive with no net profit and more cash going out than coming in? 

To date, Kaiwen has survived only through loans and by tapping lines of credit. These strategies are unsustainable and place the company at great risk.

In the financial community, creditor patience eventually wears out. Creditors just shuttered Toys R Us stores and liquidated its assets, and are about to do the same at Sears. 

China has ordered similarly debt-burdened companies like Anbang Insurance Group to liquidate their U.S. assets to settle their debts. Are Kaiwen’s creditors any different?

Why, then, has Rider’s administration pursued so strenuously an agreement with such a precarious company?

There appear to be two major reasons.

 First, Kaiwen promises to continue most Westminster programs in Princeton for five years—a short-term commitment that has hurt and will continue to hurt student enrollment and donor fundraising.

Second, and more important, Kaiwen is willing to pay Rider 40 million dollars to buy Westminster. 

The administration plans to spend this windfall to improve its Lawrenceville campus. 

Selling a nonprofit college is unethical. According to allegations in lawsuits filed against the University, it is also illegal.

Putting Westminster on the market communicated that Westminster would not be permitted to operate independently—something desired by many stakeholders—and imposed a condition that could not be met by much more suitable non-profit partners. 

Rider did not and could not purchase Westminster in 1992, when it assumed responsibility for its continuation.

Rider did not have to free itself of Westminster, a college that brought it international recognition and honor. 

Westminster was at full-enrollment and operating with surpluses in recent years, and declared to be “not a burden” by the president in a comment before the sale announcement and in the paperwork required to secure new university funds. 

The university sought to do so through the college’s sale, rather than commit to raising funds in more honorable ways.

— Gerald D. Klein

Professor of organizational behavior and management emeritus