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CNBC's Faber: Sallie Mae Buyout Could Face Political Obstacles

CNBC.com
Friday, 13 Apr 2007 | 4:16 PM ET

Sallie Mae's talks with private equity on a $20 billion buyout could hit a snag due to "significant political headwinds" facing the largest U.S. student loan company, CNBC's David Faber reported.

Faber said the total size of the deal would be $30 billion, including $10 billion in debt. That confirms the New York Times' first report of a possible LBO of Sallie Mae that could top $20 billion, about a 20% premium on its stock price. Sources told Faber that Blackstone Group is a potential bidder. Neither Sallie Mae nor Blackstone would comment on the reports.

The Wall Street Journal reports Blackstone is competing with a rival bid by JC Flowers & Co and JP Morgan Chase to gain control of Sallie Mae.

Faber Report: Sallie Mae
Discussing whether Sallie Mae will go private, with CNBC's David Faber

But while talks have "moved along quite a ways," recent analyst remarks could cast the potential deal into doubt. Lehman Brothers, for one, warns that Sallie Mae's "recent settlement with New York Attorney General Cuomo did little to remove political pressure on shares," Faber said.

According to Lehman, Massachusetts Senator Ted Kennedy and other Senate democrats are expected to propose student lending legislation on April 25 that could "be equal to or more costly to lenders than the recent White House budget proposal of cutting rates by 50 basis points," Faber said.

It is not clear what Sallie Mae's liabilities may be, what settlements are down the line or what will happen to its ability to borrow at advantageous terms with government backing, Faber said.

Meanwhile, options for Sallie Mae traded at unusually high volumes Thursday, prior to Friday's buyout reports, but it is not necessarily indicative of insider trading, option analysts said. The surge of bullish calls may have stemmed from LBO rumors that were already circulating as well as the company's upcoming earnings report, they said.

Sallie Mae recently agreed to pay $2 million to settle an investigation into financial arrangements it was accused of making with U.S. colleges and universities and change some of its business practices.

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