Sallie Mae Says Buyers Will Not Close Deal

Student loan provider Sallie Mae said late Wednesday it was informed by the consortium with whom they had entered into a buyout agreement that the terms of deal were no longer acceptable and that the deal would not be consummated as is. The consortium, made up of JPMorgan and Bank of America and led by private equity firm JC Flowers, said in a statement it would be willing to renegotiate the terms of the $25 billion deal.

The Wall Street Journal also reported today that two sources in the consortium told it that the group was “open to renegotiating the price.”

In its statement, the buyers group said that “the closing conditions [of the deal] would not be satisfied as a result of changes in the legislative and economic environment.” The reference to legislative changes refer to a bill expected to be signed by President Bush as early as today that would cut student loan subsidies to companies like Sallie Mae. JC Flowers warned Sallie Mae in July that the bill could imperil the deal (“Sallie Mae Buyout Threatened by Student Loan Legislation,” 7/12/07).

The consortium said in its release, “We have told representatives of the Sallie Mae board that we are open to discussing a revision of the transaction that reflects this new environment.”

The original deal called for the consortium to pay $60 per share for the Reston, Va.-based Student Loan Corp. (NYSE: SLM), better known as Sallie Mae. Since the deal was announced in April, Sallie’s share price has fallen steadily down to around $45 per share. But news on Thursday that the deal could be renegotiated pushed the price up more than 7 percent to $48.21 in early trading today.

Sallie Mae was strong in its resolve to get the deal done under the original terms. In its statement Wednesday, the company said that it believes “the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law.” Under the terms of the original deal, a $900 million termination fee would be owed to Sallie Mae if the group backs out.