Sallie Mae Lowers Outlook, Says Buyer Is Out

Shares of Sallie Mae (SLM) dropped more than 14% Wednesday on news the company lowered its 2008 profit forecast, and after negotiations between the would-be buyers of the lender failed. An investor group led by J.C. Flowers had originally agreed to pay $60/share for the company, but because of the crisis in credit markets the group backed off, saying the economic environment had taken a "material adverse affect" on Sallie Mae's financial condition. Sallie Mae and the investor group attempted to renegotiate a price, but SLM announced Wednesday the consortium "does not wish to pursue" any new negotiation opportunities. SLM will now contend in court that it should receive a $900 million break-up fee from the investor group, which was part of the initial agreement.

Sallie Mae also lowered its 2008 estimate of core earnings, excluding items, to $2.60-$2.80/share from $3.25/share. Analysts were projecting the company would earn $3.22/share. SLM also said it has received "indications of interest" from 10 banks about new warehouse funding totaling more than $30 billion. Shares of the company fell the most in 14 years Wednesday.

Sources: Press release, Wall Street Journal, AP
Earnings call transcript: Sallie Mae Q3 2007

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