Sallie Mae Goes a-Courting with Ex-Suitor

The company sues to force the hand of a group that backed out of a merger agreement.
Stephen TaubOctober 9, 2007

Sallie Mae has filed a lawsuit against the group that recently cancelled its plans to buy the company for $25 billion, saying it may seek $900 million in damages.

The buying group has given the student loan company until Tuesday to consider a reduced offer, valued around $21 billion, in light of what it said was “the new economic and legislative environment that faces the company,” according to the Associated Press. That was a reference new legislation President Bush signed in September that could cut about $20 billion in government subsidies to banks that make student loans and includes measures designed to increase financial aid to college students.

Sallie Mae on October 3 notified the buyer group — which includes J.C. Flowers & Co., JPMorgan Chase, and Bank of America — that all conditions for closing the merger had been satisfied, and set November 5 as the closing date.

The buyer group responded in an October 8 letter asserting that the conditions to closing the merger had not been satisfied because of, among other things, the alleged occurrence of a material adverse effect under terms of the merger agreement. Sallie Mae’s lawsuit seeks a declaration that no such effect has occurred.

“We regret bringing this suit,” said Sallie Mae chairman Albert Lord. “Sallie Mae has honored its obligations under the merger agreement. We ask only that the buyer group do the same. We are prepared to close under the contract the parties signed in April.”