M&A

Buyer Group to Sallie Mae: No Go

Citing the new student-loan law, buyers reportedly want to lower the $25 billion purchase price.
Stephen TaubSeptember 28, 2007

The global credit crunch has claimed another victim. Apparently citing changes in the borrowing environment — along with a cut in student-lending subsidies — the investor group that had agreed to buy Sallie Mae said it does not intend to complete the $25 billion deal under its original terms.

In response, Sallie Mae fired off a statement asserting that the buyer group, led by J.C. Flowers, Bank of America, and JPMorgan Chase, has no contractual basis to back out of the agreement. The student-loan company vowed to “pursue all remedies available to it to the fullest extent permitted by law.”

Although the deal includes a $900 million breakup fee, Flowers said changes in the legislative and economic environment warrant the buyer group’s change of plans, according to the Associated Press.

On Thursday, President Bush signed landmark legislation regarding student loans. Earlier this month, Flowers had signaled its possible intent to walk away from the deal when Congress sent the bill to the President, asserting that it would cut about $20 billion in government subsidies to banks that make student loans. The legislation also includes measures designed to increase financial aid to college students.

Sallie’s stock price surged Thursday on reports that Flowers was willing to renegotiate the price. However, according to published reports, Sallie insists it won’t discuss budging from the deal’s original terms. If the transaction does not go through, it would be a big blow to the buyout business, as it would have been one of the largest private-equity deals ever.

On the other hand, the deal business received a boost Thursday when Kohlberg Kravis Roberts was able to sell $9.4 billion of loans used for the buyout of First Data Corp. It was the largest offering of junk debt since the credit crunch dried up corporate funding, according to Bloomberg.