Deals and IPOs

Sallie Mae Shares Rebound as Deal Hopes Revive

Sallie Mae

Shares of Sallie Mae recovered some ground on Thursday, as traders bet that the endangered $25 billion deal to take over the student lender could be renegotiated at a lower price.

Sallie Mae Wednesday said the consortium that agreed in April to pay $60 per share for the company does not expect to complete the acquisition on the agreed terms.

However, consortium leader J.C. Flowers suggested later that the buyer group was willing to renegotiate at a lower price.

Reflecting that hope, Sallie Mae shares were trading up as much as $3.83, or 8.51 percent, at $48.84 on the New York Stock Exchange Thursday morning.

Sallie's No Harman

"We see that the deal could potentially be re-priced to $55 to $57 per share as a reasonable range," said Friedman, Billings Ramsey in a note to clients.

"However, given the pressure to close...we could see acceptance by Sallie down to the $55 level," the note added.

Sallie Mae and the buyer group declined to comment.

If the deal failed, it would be the latest in a series of proposed leveraged buyouts to falter following the meltdown in credit markets over the last couple of months.

Breakup Fee

A consortium of Bank of America , J.P. Morgan Chase and private equity firms J.C. Flowers and Friedman, Fleischer & Lowe agreed to pay $60 per share for Sallie Mae in April.

Since then, legislation cutting subsidies to student lenders and a serious credit squeeze have jeopardized the deal.

The consortium said that as of Wednesday, conditions for the closing of the deal would not be met as a result of changes in the legislative and economic environment.

The buyers said they were willing to discuss a revision of the transaction that reflects this new environment.

President Bush is expected to sign legislation Thursday called the College Cost Reduction and Access Act that sharply cuts subsidies to student lenders.

The agreed $25 billion buyout of Sallie Mae has a breakup fee of $900 million, but if the buyers can prove the legislation causes a material adverse change (MAC) to the transaction, they would not have to pay.

The student lender maintains the legislation does not constitute a material adverse change.

Sallie Mae said Wednesday it believes the buyer group has no contractual basis to renege on its obligations and that it intends to pursue all remedies legally available to it.