President Bush will sign into law legislation that cuts federal subsidies for lenders of student loans and improve student grant funding, House Education and Labor Committee Chairman George Miller said Thursday. The move is seen as another blow to the $60/share buyout accepted by Sallie Mae in April (full story). The buyers, JC Flowers, Fleischer & Lowe, Bank of America, and JPMorgan Chase, have threatened to axe the deal if proposals to lower government subsidies to lenders were passed. The deal does include a $900 million break up fee, which buyers would have to pay if they are not able to prove the legislation had a "material adverse affect" on the deal. Jaret Seiberg, analyst at Stanford Group, however, noted that this legislation does increases the chances the group of buyers would win a court battle to prove material adverse affects. Investors are showing no faith in the deal; Sallie Mae closed about 23% under the LBO agreed upon price on Wednesday. Nelnut, a student loan provider, announced it was cutting 400 jobs, 12% of its workforce, ahead of the expected approvals. If the legislation is passed, Nelnet expects additional charges of $22 to $27 million for writing down goodwill and other assets. The company says the cuts will shave operating expenses down by $25 to $35 million annually beginning in 2008. There will be a $12 to $14 million charge for the layoffs, most of which will be in the third quarter. Nelnuts shares are down 34% this year.
Sources: Dow Jones, Reuters I, II
Commentary: Sallie Mae: Buyout Might Not Happen • Sallie Mae Offers No Guidance on Timing For J.C Flowers Merger • Sallie Mae Merger-Arb: There's No Such Thing as a Free Lunch
Stocks/ETFs to watch: SLM, NNI, JPM, BAC
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