J.C. Flowers and private-equity firm Friedman Fleischer & Lowe will invest $4.4 billion and own 50.2% of the company, and Bank of America and JPMorgan Chase each will invest $2.2 billion and each will own 24.9%.
The deal follows a settlement between Sallie Mae and New York Attorney General Andrew Cuomo for $2 million in which Sallie Mae promised to change lending practices such as paying university financial aid officers for appearing on advisory boards.
Attorneys general from states including New York, California and Connecticut are looking into the extent to which student loan companies offer kickbacks to universities and their financial aid employees for steering business to the lenders.
Sallie Mae was created in 1972 as a quasi-governmental company known as a "government sponsored entity." It began cutting its direct government ties in 1997, a process completed in 2004.
After the takeover, Sallie Mae's current management will continue to lead the company, and the company will continue to originate student loans under its internal brands. It will remain headquartered in Reston, Virginia. Bank of America and Chase will continue to operate their independent student lending businesses.
Sallie Mae's independent board members have unanimously approved the agreement and recommend that its shareholders approve the agreement.
The transaction will require the approval of Sallie Mae's stockholders, is subject to regulatory approval, and is expected to close in late 2007. Sallie Mae will not pay further dividends prior to closing of the deal.
Sallie Mae will continue to have publicly traded debt. Bank of America and JPMorgan have committed to provide debt financing for the transaction and to provide additional liquidity to Sallie Mae prior to the closing of the deal.
Chase and Bank of America also will continue to operate their independent student lending businesses.
UBS Investment Bank acted as lead financial adviser to Sallie Mae.