Sallie Mae to Buyers: Seal the Deal

The student-loan company responds to reports that proposed buyers have been saying the conditions of the previously agreed-upon deal might not be met.
Stephen TaubSeptember 21, 2007

Sallie Mae has gone on the offensive to make sure its agreed-upon $25 billion buyout is completed as originally planned.

The company, more formally known as SLM Corp., fired off a press release Thursday in response to reports that proposed buyers were saying conditions of the deal might not be met. “Our contract is with Bank of America and JPMorgan Chase, two of America’s largest and strongest banks. We expect these banks to honor their commitments under that contract, not breach the contract,” the company stated.

On Thursday morning, The New York Times reported that the buyout group plans to redo the deal and seek a lower price.

In April an investor group led by private-equity firm J.C. Flowers agreed to take SLM private in a transaction valued at $25 billion. The original deal included a $900 million breakup fee, The Associated Press noted Thursday. Flowers and another private-equity firm, Friedman Fleischer & Lowe, planned to invest $4.4 billion and own 50.2 percent of Sallie Mae. Bank of America and JPMorgan Chase each would invest $2.2 billion and own 24.9 percent.

The AP noted that earlier this month, Congress sent President Bush a bill that would cut about $20 billion in government subsidies to banks that make student loans. It also included measures designed to increase financial aid for college students. The investors’ group claims the legislation “could result in a failure of the conditions to the closing of the merger to be satisfied,” according to the report.

In its statement, Sallie said: “The company affirms that the College Cost Reduction Act, which is awaiting the President’s signature, does not and will not constitute a Material Adverse Effect under the merger agreement.” For its part, Flowers reportedly stated: “The buyer group stands by its previous statements made to SLM regarding the possibility that the conditions to closing may not be met.”

Sallie, however, isn’t the only company currently worried about whether a previously agreed-upon deal would be done under the original terms. The Wall Street Journal, for instance, reported that Kohlberg Kravis Roberts & Co. and Goldman Sachs Group’s private-equity arms may not complete their planned $8 billion purchase of Harman International Industries Inc. And late last month, Home Depot agreed to trim $1.8 billion from the original $10.3 billion price for its HD Supply wholesale-construction unit.