Magazine article American Banker

Sallie Sues after Buyout Group Tries to Renegotiate

Magazine article American Banker

Sallie Sues after Buyout Group Tries to Renegotiate

Article excerpt

SLM Corp., better known as Sallie Mae, sued the buyout group led by J.C. Flowers & Co. that is attempting to renegotiate its $25.3 billion deal to acquire the nation's largest student lender.

In a filing in Delaware chancery court Monday, Sallie Mae said that the buyers did not have ground to terminate the deal over legislative changes or market conditions and that they should pay a $900 million breakup fee if they do not proceed with the purchase.

Last week the buyout group, which also includes Bank of America Corp., JPMorgan Chase & Co., and Friedman, Fleischer & Lowe, told Sallie Mae that the liquidity crunch and recently passed legislation that cuts subsidies to student lenders constituted a materially adverse effect under the original agreement. The buyers proposed a discounted offer of $50 a share up front, plus warrants with an eventual payout of up to $10 a share.

Sallie argues that the legislative and market changes do not constitute materially adverse events under the deal. In a statement released Monday night, Albert L. Lord, Sallie's chairman, said, "We are prepared to close under the contract the parties signed in April."

Sameer Gokhale, an analyst with KBW Inc.'s Keefe, Bruyette and Woods Inc., said that "Sallie Mae is not obligated by any way, shape, or form to a price cut." However, he said, Sallie "may want to consider accepting a slightly lower price in the interest of getting the deal done and maybe giving the buyer consortium a little break."

Steven M. Davidoff, an assistant law professor at Wayne State University in Detroit and an expert on mergers and acquisitions, said Sallie is trying to "scare Flowers into having to tell investors they lost the $450 million" they would be required to pay Sallie Mae in breakup fees if they called off the deal. (Flowers is responsible for half of the $900 million breakup fee, according to Sallie's complaint. …

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