Sallie Mae Deal 'Not Going to Get Done'

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Includes: BAC, JPM, SLM
by: Susan Lerner

The investor group led by J.C. Flowers & Co. is seeking court approval to scrap its $25B deal to purchase SLM Corp. Sources close to the group, which also includes Bank of America and JPMorgan Chase, said "We are assuming that this deal is not going to get done. There is certainly a mindset change since last week. This is now a fight over $900 million, let's not pretend there's still a deal on the table." The buyers claim a materially adverse effect has occurred at the student loan provider, better known as Sallie Mae, and that their $60/share cash bid and now even a revised cash and warrant offer are unacceptable given weaker economic conditions and recently signed student loan legislation. Last week, Sallie Mae sued to get the deal done under its original terms or to receive the $900M break-up fee provided for in the merger agreement. Subsequently, Sallie Mae reported earnings that fell short of analysts' expectations, calling the deal distractions "significant" and saying they had cost "earnings momentum." On Friday, Sallie Mae asked the court to expedite the trial saying the company was "in an untenable position" because the buyout group controls its day-to-day operations. The group, in response, said an agreement to end the deal would free Sallie Mae "from the restrictions that it is complaining about."

Sources: Dow Jones, The Street.com, MarketWatch
Commentary: How The New Student Lending Bill Affects Sallie Mae
Stocks to watch: SLM, BAC, JPM. Competitors: KEY, STU

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