Sallie Mae shareholders approve sale

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ASSOCIATED PRESS

Shareholders of SLM Corp., commonly known as Sallie Mae, yesterday approved a private-equity firm’s $25 billion buyout of the nation’s largest student lender.

Shareholder approval had been expected. It came in a vote at a special meeting at the company’s headquarters in Reston.

But uncertainty hovers over the takeover deal, which would be one of the largest private buyouts ever. The investors who agreed to buy Sallie Mae for $60 a share, J.C. Flowers & Co., Bank of America Corp. and JPMorgan Chase & Co., have said that legislation could kill the deal.

That helps explain why SLM shares are only trading around $47.

At issue are the two sides’ interpretation of their April acquisition agreement, under which significant negative developments can nullify the deal.

Legislation that passed the House last month would cut in half the interest rate on government-backed student loans — a move that would be paid for by a roughly $19 billion reduction in federal subsidies to student lenders like Sallie Mae. The bill also would cap annual loan repayments at a percentage of income, protecting graduates with low salaries from having to pay more than they can afford.

The Bush administration’s 2008 budget proposal, put forward in January, called for a roughly $15.5 billion cut in subsidies to lenders.

The investors’ group has told Sallie Mae that it believes that the House bill and similar legislation pending in the Senate “could result in a failure of the conditions to the closing of the merger to be satisfied.”

Stephanie Cutter, a spokeswoman for the Flowers firm, declined to comment yesterday.

Sallie Mae said last week that the deal “can and should be consummated in October.”

The company reaffirmed its belief that the federal student-loan legislation, if enacted, would not constitute a “material adverse effect” as defined under the merger agreement that would nullify the deal.

“I think they’re going to continue to posture about pricing,” Chip MacDonald, a securities lawyer at Jones Day in Atlanta, said yesterday. “I think it’s clear that [the investor firms] want a better price.”

With the credit markets nervous and less hospitable to big private takeover deals than they had been in recent months, “You’re seeing a lot of deals not getting financed,” Mr. MacDonald noted. That, coupled with the legislative prospects in Congress, he said, means “the climate is such that it’s a bad brew, it’s a bad combination of facts.”

Shares of SLM fell 43 cents to $46.75 yesterday.

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