Investor group offers termination of merger agreement with Sallie Mae

By Lisa Kerner

Charlotte, N.C., Oct. 15 - The investor group led by J.C. Flowers & Co. offered to terminate its merger agreement with SLM Corp. (Sallie Mae) despite Sallie Mae's claims it is "not in any kind of difficulty."

J.C. Flowers, on behalf of the group that includes Bank of America and JPMorgan Chase, sent a letter to the Delaware Chancery Court explaining why it believes Sallie Mae has suffered a "material adverse effect" under the agreement and seeking an expedited trial.

Sallie Mae had complained that the merger agreement was impeding its ability to operate.

J.C. Flowers said Sallie Mae is the single largest beneficiary of federal subsidies and suffers the largest economic impact as a result of the recent enactment of the College Cost Reduction Act.

The investor group believes the College Cost Reduction Act will cut Sallie Mae's core net income by approximately $316 million, or 15.2%, in 2009 and by $595 million, or 23.5%, in 2012, a company news release stated.

In addition, the investor group said Sallie Mae has been disproportionately affected by the recent credit market collapse due to its dependence on the wholesale credit markets to finance its operations.

J.C. Flowers also disputes Sallie Mae's claim that it is entitled to a $900 million termination fee.

On Oct. 9, it was reported that Sallie Mae filed a lawsuit in Delaware Chancery Court against the buyer group seeking a declaration that the buyer group has repudiated its merger agreement with Sallie Mae, that no material adverse effect has occurred under the merger agreement and that Sallie Mae may terminate the merger agreement and collect damages of $900 million.

On Sept. 26, the buyer group said it no longer planned to close the proposed deal to take the company private. Once Sallie Mae threatened legal action, the buyer group revised its offer to a lowered price of $50 in cash plus 0.2694 of a warrant per Sallie Mae share from $60 in cash per share. The merger had been set to close Nov. 5.

Sallie Mae is the nation's leading provider of saving- and paying-for-college programs.

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