- The Washington Times - Monday, April 16, 2007


A group of investors announced plans yesterday to buy Sallie Mae, taking the nation’s largest student lender private in a $25 billion deal that comes as some regulators call for tougher standards and lower federal subsidies for the $85 billion college loan industry.

Private-equity firm J.C. Flowers & Co. and three other investors will pay $60 per share for Reston-based SLM Corp., commonly referred to as Sallie Mae. The sale price represents a nearly 50 percent premium for Sallie Mae’s previously sagging stock before takeover rumors emerged late last week.

SLM shares shot up nearly 18 percent on the New York Stock Exchange, where they gained $8.59 to close at $55.35. The company’s stock has ranged from $40.30 to $55.21 during the past 52 weeks.

J.C. Flowers and private-equity firm Friedman Fleischer & Lowe will invest $4.4 billion and own 50.2 percent of the company. Bank of America and JPMorgan Chase each will invest $2.2 billion and each will own 24.9 percent. The buyers will also provide Sallie Mae with $200 billion in backup financing.

John Oros, a managing director at J.C. Flowers, said the firm was attracted to Sallie Mae’s stock price, which had fallen to around $40 per share before takeover talks began. The investors also weren’t deterred by the brewing troubles for lenders and the prospect of a clampdown on the industry by lawmakers.

“We think Sallie Mae is a great company and a great business, and appropriate regulation will sort itself out in a way that will make this an attractive transaction for us,” Mr. Oros said.

Sallie Mae is by far the largest school lender, originating $23.4 billion in student loans last year. The company has recently expanded into other areas of lending, such as debt collection and 529 college savings plans.

But it has also been subject to greater attention from lawmakers and regulators, who are now probing ties between lenders and college officials who guide students toward specific lenders for their loans.

Democratic lawmakers have threatened to cut federal subsidies to student lenders. Rep. George Miller, California Democrat and chairman of the House Education and Labor Committee, said last week that the buyout raised concerns about transparency at Sallie Mae.

Mr. Miller said yesterday that given “the checkered past of Sallie Mae,” he and Congress would be interested “in learning more about how this new ownership will change their operations, and whether this is truly in the best interests of student borrowers and families who are working extremely hard to pay these loans back.”

Company spokesman Tom Joyce said yesterday that even though the company will be private, it will still be subject to federal and state lending laws and will continue to make filings to the Securities and Exchange Commission because it operates in the public debt market.

“We will have ample and sufficient transparency,” Mr. Joyce said.

There will be little change in Sallie Mae’s corporate structure. Chief Executive Officer Tim Fitzpatrick will continue in his post, as will the company’s top management. The company will remain in its Reston headquarters, and no job cuts are expected, Mr. Joyce said. Student borrowers and institutions will see no change in the way loans are handled or processed, he said.

Sallie Mae’s lending business will be kept separate from Bank of America and Chase, which will continue to operate their competing student loan units.

Sallie Mae’s board unanimously approved the deal, which was signed Sunday night. The transaction requires the approval of Sallie Mae’s stockholders and is subject to regulatory approvals. If approved, it is expected to close late this year.

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