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Archipelago Learning buys Educationcity for $87M

June 10, 2010

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NEW YORK—Online education company Archipelago Learning Inc. said Thursday that it has bought Educationcity Ltd., a privately held company providing online teaching tools, for about $87 million in cash and stock.

The company also trimmed its full-year guidance because of slowing orders and renewals.

Educationcity operates a website, EducationCity.com, that helps children from 3 to 12 learn about reading, math and science. It has about 13,000 school customers in the U.S. and the U.K.

Archipelago Learning's main product, Study Island, also provides Web-based educational testing and study aids to students in kindergarten through 12th grade. The company says EducationCity.com helps students learn, while Study Island tests their knowledge.

The deal closed Wednesday. Archipelago paid $65 million in cash upfront and issued 1.2 million shares of Archipelago stock, worth about $17 million. It will pay another $5 million in two installments by December 2011.

Archipelago, which is based in Dallas, also cut its profit outlook because of a delay in schools renewing their subscriptions to its online programs. It cut its 2010 earnings-per-share estimate to 36 to 40 cents per share from a previous guidance, issued in May, of 42 to 46 cents per share. Excluding the costs of stock-based compensation for employees, it expects earnings per share to be 40 to 44 cents per share, down from 44 to 48 cents per share.

Including the purchase of Educationcity, Archipelago expects adjusted earnings per share of 34 cents to 38 cents per share in 2010.

Analysts surveyed by Thomson Reuters forecast, on average, earnings per share of 44 cents this year. The estimates typically exclude one-time items.

Shares fell 6 cents to $13.94 in afternoon trading.

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