Sallie Mae Sues for Original Deal or Breakup Fee

SLM Corp. has sued to force the investor group including J.C. Flowers & Co., Bank of America Corp. and JPMorgan Chase to proceed with its original $25.3B buyout of the student loan provider better known as Sallie Mae, or pay a $900M breakup fee. Last week, the group submitted a revised bid consisting of $50 in cash and $7-$10 in warrants contingent upon SLM's financial results, rather than the $60/share in cash agreed upon in April, claiming a materially adverse effect had occurred and that the original price was unacceptable given weaker economic conditions and recently signed student loan legislation. Sallie Mae says the law would cut net income by 1.8-2.1% over each of the next five years, but the buyers estimate profit cuts of 14.4% in 2009 and 20.1% in 2012. SLM's lawsuit claims there has been no material adverse effect that would allow the group to back out of the deal without paying the breakup fee. SLM said it regretted bringing the suit, but said it had honored its obligations under the deal. "We ask only that the buyer group do the same. We are prepared to close under the contract the parties signed in April," said Sallie Mae Chairman Albert L. Lord. J.C. Flowers said the suit was without merit and rested on a "fundamental misunderstanding" of the terms of the contract"

Sources: Press release, AP, Bloomberg
Commentary: How The New Student Lending Bill Affects Sallie Mae • Harman Buyout Shelved: Bleak Outlook for SLM Corp and First Data Deals
Stocks/ETFs to watch: SLM, BAC, JPM. Competitors: KEY, STU

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Comments

[Carpe Max:]

Sallie Mae does have strong corporate ties to both JPMorgan and BofA www.newsvisual.com/new... , which I'm sure JPMorgan and BofA used to pressure Sallie Mae. Sallie Mae could now use those same ties to try and possibly settle out of court.

2007 Oct 09 07:25 PM