SALLIE, MAY I?
Shares of student lending giant Sallie Mae plummeted yesterday on heavy volume as hope of a renegotiated takeover deal with billionaire J. Christopher Flowers faded.
Flowers and his partners at JPMorgan Chase and Bank of America offered to terminate the $25 billion deal for Sallie in response to the lawsuit brought against them by the nation’s largest student lender.
In its suit Sallie alleges Flowers & Co. breached the $60 per-share merger agreement signed in April and must pony up a $900 million break-up free to its shareholders.
The Flowers group said it’s “prepared to eliminate any concern that Sallie Mae has” by terminating the deal and thereby freeing the company from the conditions and restrictions “of which it complains.”
The two sides could continue to fight over the $900 million termination fee, according to a counterclaim filed by Flowers in Delaware Chancery Court.
The savvy New York financier also reiterated his main contention that Sallie’s business has been “materially” damaged by new legislation that cuts federal subsidies to student loan providers, which allows him to walk away without paying the fee.
Last week, Sallie sought an expedited hearing of its lawsuit, saying a resolution is needed so it can resume normal operations.
But in its counterclaim the Flowers group said the offer to end the contract amounts to resolution, which removes the need for a quick hearing.
A Sallie spokesman dismissed the move as “another effort to confuse events.”
“I think it is now an argument over the $900 million rather than salvaging a deal,” said Steven Davidoff, a law professor at Wayne State University who has closely followed the deal. “I wouldn’t be surprised if the parties settled for something less than $900 million just before trial.”
Sallie shares sank 5.2 percent, or $2.54, to $45.91 yesterday amid mounting concerns the Flowers-led deal is history.
Sallie Chairman Albert Lord said last week other investors potentially interested in acquiring the student lender have been heard from. He said he couldn’t respond because of the current deal with Flowers.
“Will this result in Flowers getting SLM at a lower price?” said Antony Page, a professor at Indiana University School of Law. “Like the market, I think probably not, since Lord seems committed to receiving something close to $60 [per share].”