Buyer group presents new offer to Sallie Mae

By Angela McDaniels

Seattle, Oct. 2 - J.C. Flowers & Co. LLC, JPMorgan Chase Bank, NA, Bank of America, NA and Friedman Fleischer and Lowe sent a revised proposal to SLM Corp., changing the offer price to $50 in cash plus 0.2694 of a warrant per share from $60 in cash per share.

The buyer group said that based on its analysis, the warrants could be worth $7 per share if Sallie Mae's performance remains in line with its own projections and could be worth $10 per share if the company exceeds its projections.

"This revised proposal offers full and fair value to the Sallie Mae shareholders in light of the changes that have occurred since the signing of our agreement, and a significant premium to what the company's unaffected share price would likely be based on historical trading ranges and current market conditions," J.C. Flowers & Co.'s J. Christopher Flowers said in a letter to Sallie Mae, which was included in a news release.

The group also said it would consider amending the agreement's no-shop clause and, if the Federal Deposit Insurance Corp. does not approve the transaction in a timely manner, it would agree to an alternative arrangement under which Sallie Mae would be divested of its industrial loan charter.

In response, Sallie Mae said its contract is with Bank of America and JPMorgan Chase and that it expects the banks to honor that contract.

The amended proposal follows the buyer group's Sept. 26 announcement that it did not expect to consummate the acquisition and Sallie Mae's subsequent statement that it would "pursue all remedies available to it to the fullest extent permitted by law."

Sallie Mae also said the College Cost Reduction Act does not constitute a material adverse effect under the merger agreement.

In Tuesday's news release, the buyer group disagreed and said the act will cut subsidies to the student loan industry by $22.3 billion, whereas the Bush Budget Proposal would have cut subsidies by $15.5 billion.

The merger agreement was drafted so that any legislation more adverse to Sallie Mae than the Bush Budget Proposal would be considered a material adverse effect, according to the release.

It was previously reported that Sallie Mae shareholders approved a merger agreement with Mustang Holding Co., Inc., an affiliate of J.C. Flowers & Co., Bank of America and JPMorgan Chase. J.C. Flowers and Friedman Fleischer & Lowe had planned to invest $4.4 billion for 50.2% ownership of Sallie Mae, and Bank of America and JPMorgan Chase were to invest $2.2 billion each for a 24.9% stake in the company.

Sallie Mae, based in Reston, Va., is the United States' leading provider of saving- and paying-for-college programs.

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