Nova is not dead, but buried alive
Nails keep getting hammered into the still-open coffin with the name NOVA written on it. This morning, Matt Dioguardi of Liberal Japan alerted us to a series of articles detailing the Ministry of Health, Labor and Welfare’s decision to stop providing subsidies for Nova students who qualify for the government-sponsored “kyufukin” training program (Full description of the program in Japanese).
Under this program, students who attend a certain minimum percentage of classes are eligible to receive a healthy chunk of their tuition as a refund from the government. Needless to say, Nova’s inability to be a provider of Kyufukin-eligible courses will further hurt their ability to conduct sales; the Nikkei refers to the ministry’s decision as a “major blow” to the nation’s largest language school operator.
We now have several sources reporting that Nova President Nozomu Sahashi is considering a ‘parnership’ with another firm in order to keep the firm afloat. The company is reportedly selling off property (when property values are climbing in Japan’s metropolitan areas), and 13.9 billion yen in cash and savings that had been booked on the firm’s 2005 financial statements had dried down to 4.1 billion yen as of March 31, 2007. In addition, there are reports that a large number of students, worried about the company’s ability to survive, have been canceling their contracts.
One part of Sahashi’s interview with the Yomiuri jumped out at me:
Though Sahashi admitted that several firms in various industries had offered to form partnerships with Nova, he rejected the possibility of a business affiliation with another English school. “Other English conversation schools wouldn’t help us to regain the public trust, and we couldn’t expect any benefits from such a partnership, either,” Sahashi said. “I don’t want to tie up with a fellow trader.”
It sounds like he’s saying they’re as bad as he is. That aside, I’d find it hard to believe that anyone would get involved with a capital tie-up with Nova, especially if Sahashi were to remain on board. As the Yomiuri put it, “According to one source, a large retailer had discussed a possible business affiliation with Nova through a fund, but gave up on the plan because the two companies could not agree on the conditions.”
When someone tosses you a lifejacket, it’s hard to argue over the color.
At the same time, worse companies have been saved. I don’t think it’s impossible for someone to come in and save Nova, but this case is particularly puzzling. They have great locations, yet seem to disprove the maxim that “Location is everything.” They are selling off property when the property market is booming, which leads me to believe that they are desperate and don’t expect to raise money from dumping shares - or, they need cash really fast. From a management consulting point of view, I see nothing in the Nova corporate culture worth saving - nothing at the management level that tells me they know what to do in a situation like this. Talk about shit-on-a-plate for risk management - their best defense against a government shutdown of part of their operations is to sell off their most valuable future assets and beg others to buy them out of their own equity swamp…Where did these clowns get their MBAs? Oh yeah…
I don’t imagine many companies being in the position to come in and set things straight at Nova. We’re talking about regaining confidence with customers, employees, suppliers, creditors and even more: Someone who could financially withstand the government-imposed conditions on the company’s business activities. I estimate that one would need to invest $60 million in buying up shares in the company before gaining control at the board level. The risk/reward just isn’t there. Given the fact that the big schools continue to lose market share to smaller, independent schools, why not use that money to start a series of smaller, more specialized schools that address student needs and create an environment that is geared towards personal success, which is truly marketable?
Nova’s business model, based upon signing people up to long contracts and not having to refund them, is dead - and it’s time for something new.
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