Sallie Mae, Flowers continue fight; EchoStar up on AT&T speculation; line for Wendy's gets longer

By Evan Weinberger

New York, Sept. 27 - The fight between SLM Corp. and a private equity consortium led by J.C. Flowers & Co. got uglier late Wednesday and into Thursday, although observers do not expect the two parties to go to court.

Meanwhile, EchoStar Communications Corp. stock shot up on growing rumors of a buyout by AT&T. The line to bid on Wendy's International Inc. just got longer as a third party entered the second round. And XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. got divergent opinions on their merger from two regulatory commissioners Thursday.

In a sign of what may be coming in the next few days, shareholders in Westport, Conn.-based Playtex Products Inc. approved the sale of the company to Energizer Holdings Inc. Thursday. St. Louis-based Energizer, best known for batteries and flashlights, will pay $1.16 billion for Playtex, or $18.30 per share. The deal is scheduled to close Oct. 1.

Playtex stock (NYSE: PYX) rose 2 cents, or 0.11%, to close at $18.27 Thursday. Energizer stock (NYSE: ENR) fell $1.31, or 1.17%, to $110. 26.

Also late Thursday, American International Group, Inc. announced that it completed its acquisition of 21st Century Insurance Group. AIG stock (NYSE: AIG) slipped 6 cents, or 0.09%, to $67.47. 21st Century was up a penny, or 0.05%, to $22.01.

A market source said that he expected five or six deals to be completed by Monday morning as the third quarter comes to a close. "Books-wise, it's so much easier to think about," he said.

If the merger and acquisition market is active, the equity markets are not. They maintained their flatness Thursday. An unexpected drop-off in new jobless claims last week may have balanced out news everyone appeared to be expecting: The Commerce Department reported new home sales were down 8.3% in August to the lowest point in seven years. Speculation again moved toward the prospect of a further rate cut.

The Dow Jones Industrial Average shrugged Thursday, adding 34.79 points, or 0.25%, to close at 13,912.94. The Nasdaq also appeared indifferent, posting a 10.56 point, or 0.39%, gain for a 2,709.59 close. The Standard & Poor's 500 matched the Nasdaq's activity, closing at 1,531.38, a gain of 5.96 points, or 0.39%.

Sallie Mae, J.C. Flowers playing chicken

Shortly after SLM Corp., the Reston, Va.-based government-backed student lender, announced that it had been told that the consortium led by private equity shop J.C. Flowers & Co. did not expect to consummate the deal, the consortium confirmed the story but added it was ready to negotiate.

At a meeting at UBS, Flowers representatives reportedly said they wanted out because the legislative and economic environment materially changed the deal. They were, however, willing to renegotiate the terms.

And at that, according to a story in The New York Times, Sallie Mae's representatives got up and left "abruptly."

The material change J.C. Flowers and its partners referred to is H.R. 2669. President George W. Bush signed the bill into law Thursday. H.R. 2669 is better known as the Higher Education Access Act of 2007 or the College Cost Reduction Act. The bill will slash subsidies given to Sallie Mae and other student lenders as well as increase Pell Grants and other measures.

The law follows the discovery of shady business practices by many education lending institutions by Congressional investigators and New York attorney general Andrew Cuomo.

The law, as well as the credit squeeze, has already caused a great deal of acrimony in the long-discussed takeover of Sallie Mae by a consortium led by private equity shop J.C. Flowers & Co. The deal was originally set at $60 per share of Sallie Mae in April, for a total of around $25 billion.

Sallie Mae says the new law would impact its earnings by between 1.8% and 2.1% over the next five years, and that they had shared those estimates with the consortium. Sallie Mae also said that it had record new issuance in July and August.

It is believed that J.C. Flowers and the consortium will term the new law a "materially adverse condition," or MAC, to squeeze its way out of the deal. They had originally wanted to simply renegotiate. It is also believed that Sallie Mae will tell the consortium not so fast.

None of this should be a surprise for J.C. Flowers and its consortium, according to market sources, and may point to Flowers simply looking to force a renegotiation. "This legislation was talked about in January," one market observer said. The deal, he pointed out, was consummated in April.

As far as the credit crunch, that's a case of buyer beware, the market source added.

If the law is not deemed a MAC, then the consortium will be on the hook for a $900 million reverse termination fee if they cancel the deal. But what seems more likely is that the two sides are headed for a date before a judge.

But the market watchers don't think that it will get that far. If Flowers really wanted out, Flowers would just pay the breakup fee. And if Sallie Mae was really serious about taking the case to court, they'd probably be sending out lawyers, not press releases, at this point. "I don't think it's going to be court," the market watcher said. "It's just going to be a renegotiation."

Amid the latest events surrounding the deal, Sallie Mae stock skyrocketed to $49.12, a gain of $4.11, or 9.13%, Thursday.

EchoStar up with AT&T rumors

EchoStar Communications, the Englewood, Colo.-based communications company best known for its Dish Network satellite television service, was way up on increased chatter about a buyout by AT&T Inc. Talk cited in several media reports has AT&T offering $55 for EchoStar, with EchoStar holding out for $65.

EchoStar has been making other moves recently that have proved pleasing to investors. On Monday, it agreed to buy Slingbox, a Foster City, Calif.-based internet television company, for $380 million. EchoStar talked about dividing Slingbox into two publicly traded entities. One would be the consumer TV firm that is the apple of AT&T's eye, the other a wholesale satellite transmission service.

AT&T's efforts to expand its footprint in the lucrative television-over-internet market have been plagued with problems, and observers see the potential acquisition of EchoStar as a way to jumpstart the San Antonio-based telecommunications standard bearer's efforts.

EchoStar stock (Nasdaq: DISH) surged on the speculation, adding a robust $2.51, or 5.77%, to close at $45.98.

AT&T stock (NYSE: T) stayed still, closing at $42.83 on Thursday.

Line growing for Wendy's

The line to buy out Wendy's keeps getting longer. According to a report in the Wall Street Journal, Fidelity National Financial, along with partners, Thomas H. Lee Partners LLC, Oaktree Investments and Ares Management LLC, will make a second-round bid for the Dublin, Ohio-based restaurant operator.

The report didn't say how much the Fidelity group would offer, but Nelson Peltz's Triarc Cos. Inc. had bid between $37 and $41 per share, or a total of up to $3.6 billion. That's a lot of Frosties.

On Wednesday, Cedar Enterprises, a major restaurant chain that already owns 134 Wendy's franchises, announced that it would enter a second-round bid. Cedar, which is owned by David Karam, did not name a bid price.

Cedar has the backing of the Thomases, Wendy's founding family. The Thomases carry a lot of influence at Wendy's.

Wendy's stock (NYSE: WEN) closed up $1.09 cents, or 3.24%, Thursday, at $34.72.

Mixed signals on XM, Sirius merger

A day after the Department of Justice's antitrust chief said his staff would work as fast as possible on the XM and Sirius merger, the two satellite radio operators got conflicting reports on the status of the merger from Federal Communications Commission board members Thursday.

The FCC's Republican chairman, Kevin Martin, told the National Association of Broadcasters that the deal would probably not adversely affect local advertising revenues. According to Reuters, Martin set a tentative Dec. 6 decision date on the merger.

At the same time Michael Copps, a Democratic FCC commissioner, was skeptical about the potential merger. He also said that the discussions of the merger were moving too fast and were not sufficiently transparent.

The FCC has a strong Republican majority.

Washington-based XM and New York-based Sirius announced the merger in February. The deal values each share of XM at $17.02. XM stock (Nasdaq: XMSR), dropped 38 cents, or 2.64%, to $14, Thursday. Sirius stock (Nasdaq: SIRI) was unchanged, closing at $3.42 on the day.

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