The Thunderbird School of Global Management, one of the world's top-ranked business schools, is selling its campus to a for-profit college operator as part of a last-ditch effort to bolster its finances as more people question the value of an M.B.A.
The partnership with Laureate Education Inc. pushed at least two board members to resign in protest last week and angered pockets of its 40,000-person alumni community. Administrators and other insiders said Thunderbird needed to take a drastic step in order to stay afloat.
Thunderbird, which was founded in 1946 on a former Air Force base in Glendale, Ariz., has long identified itself as a training ground for global business leaders, even requiring its full-time students to display proficiency in two languages. But that claim carries less weight as more schools tag their own programs as "global" and open outposts across Asia, Latin America and the Middle East.
Applications to Thunderbird's two-year, full-time M.B.A. have tumbled by nearly 75% in the past 15 years, and less than half of job-seeking students from last year's class landed positions within three months of graduation. Despite adding a number of short and Web-based programs, the student body shrank by 8% from 2007 to 2012.
Thunderbird's woes reflect the existential crises that many business schools now face as demand softens for full-time, two-year M.B.A.s. Graduate business programs historically fared well during economic downturns as workers sought to beef up their resumes in a tough job market, but the prolonged recession gave many prospective students pause as they worried about taking on debt without seeing clear return on the investment.
While most business schools operate within diverse research universities, Thunderbird has no parent school to shield it from changing appetites for management education.
Thunderbird, which counts among its alumni BP PLC Chief Executive Bob Dudley and former Morgan Stanley International Chairman Walid Chammah, first announced a partnership with Laurent in March, but only disclosed details to alumni in recent days. Under the agreement, Thunderbird will get up to $52 million from a sale-leaseback of its campus, using some of the proceeds to repay $24.5 million in debt.
The two also will create a joint venture—with Laureate providing $13 million in cash and Thunderbird contributing its strong executive-education operation—allowing Thunderbird to host programs at some of Laureate's 71 campuses world-wide, and expand its online and undergraduate offerings.
The partnership should yield an operating surplus of more than $100 million for Thunderbird over the next decade, according to a copy of the alumni letter reviewed by The Wall Street Journal.
The school's accreditor must still sign off on the deal, which also grants three board seats to Laureate representatives.
Thunderbird's 28-member board overwhelmingly supported the alliance in a June 26 vote, but the dissent shows how impassioned stakeholders have been.
"This is the end of Thunderbird as we have known it," director and alumnus Merle Hinrich wrote in his July 1 resignation. "The Laureate transaction is a tragedy for Thunderbird and a total windfall for Laureate."
The two parties had been in talks for a decade, but Thunderbird began seriously pursuing strategic alternatives in October after growing weary of seeing weak demand and expensive new initiatives dent its bottom line. The school ended fiscal 2012 $4 million in the red.
Though some nonprofit institutions have hired for-profit entities to run their online operations in recent years—Laureate signed on to help expand the Web reach of the University of Liverpool a decade ago—partnerships as comprehensive as the one Thunderbird is undertaking remain rare. Still, such creative fixes may become more common as midtier schools continue to seek new student populations and revenue streams.
Some of Thunderbird's alumni have complained the school's reputation could suffer by aligning with a for-profit entity, even though Laureate has largely avoided criticism over aggressive recruiting tactics and questionable academic standards in corners of the industry. Laureate recently landed a $150 million investment from a division of the World Bank, and former President Bill Clinton serves as honorary chancellor.
Selling to Laureate a campus built with donations and tuition funds "is unconscionable," director and Thunderbird graduate Thomas Greer Jr. wrote in his July 2 resignation, adding that he will no longer contribute his time or money to the school.
Alumni can repurchase the campus from Laureate within two years, or Thunderbird can buy it back at the end of the 20-year lease term. Thunderbird and Laureate will invest up to $10 million and $20 million, respectively, in campus upgrades.
Thunderbird's Shanghai alumni association, with about 95 active members, issued a letter to the school's alumni board in late May stating it was "firmly against" the Laureate tie-up, offering as alternatives asset sales, alliances with nonprofit colleges and even shutting down the school to "preserve the integrity and reputation of the brand."
And nearly 2,000 graduates have signed a Change.org petition alleging the Laureate tie-up would "cheapen the value of the [Thunderbird] degree."
Thunderbird will be the only nonprofit member of Laureate's U.S. network, which also includes Kendall College in Chicago, Web-based Walden University and the Santa Fe University of Art and Design. The company's network institutions—some of which it built, others it bought or joined with—enroll about 780,000 students in 29 countries.
About eight of the Thunderbird's 50 full-time professors signed nondisclosure agreements to participate in discussions last winter with four potential partners, according to Faculty Dean Dale Davison. (Thunderbird hasn't identified the other finalists.)
The partnership talks were "poorly managed…and a communication disaster," Mr. Hinrich wrote. "It is a perfect case study on how NOT to lead or manage a graduate school."
Still, the plan does have support beyond the boardroom. David Young, a 1991 graduate who works as a brand consultant in London, says he's optimistic that Thunderbird will maintain or even improve its reputation now, since Laureate only benefits in the long run if its partner is well regarded.