Buyers of Sallie Mae Propose New Terms

The group has claimed the combination of weaker credit markets and a new federal law slashing government subsidies to student lenders like SLM would hurt the company's business and justified a lower price tag. It argues that SLM's business has suffered a "material adverse event,"...

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Bibliographic Details
Published inThe Wall Street journal. Eastern edition
Main Author Dennis K. Berman and David Enrich
Format Newspaper Article
LanguageEnglish
Published New York, N.Y Dow Jones & Company Inc 03.10.2007
EditionEastern edition
Subjects
Acquisitions & mergers
Warrants
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Summary:The group has claimed the combination of weaker credit markets and a new federal law slashing government subsidies to student lenders like SLM would hurt the company's business and justified a lower price tag. It argues that SLM's business has suffered a "material adverse event," which would be grounds for the buyers to walk away from the transaction without paying the $900 million breakup fee. The Flowers group said the warrants would be worth about $7 a share in 2012 if SLM performs up to its own expectations, and could pay out $10 a share if the company beats its forecasts. At the same time, though, the buyout group said in a document sent yesterday to the SLM board that student-lending legislation signed into law last week by President Bush could cut SLM's profits by 14% in 2009 and 20% in 2012. Those projections are considerably less rosy than the company's, and if they are accurate they could substantially erode the warrants' value. The Flowers group apparently is hoping that the warrants will highlight what the group believes are SLM's implausible expectations about the company's prospects in the wake of the new student-lending law. "If [SLM] will stand by their numbers, they'll realize they're getting a very good deal," said the person close to Flowers group.
ISSN:0099-9660