Sallie Mae has agreed to a proposal by the investor group seeking to end its $25 billion buyout of the big student lender that drops business restraints on the company, reducing prospects for an expedited trial of the lawsuit that Sallie Mae had sought against the group.
The two sides failed to reach agreement by a Delaware Chancery Court judge’s deadline Tuesday on voiding conditions of the deal that prevent the company from making strategic business moves and talking to other potential suitors. However, an attorney representing Sallie Mae, formally called SLM Corp., told the judge in a letter Wednesday that the waivers offered by the investor group led by private-equity firm J.C. Flowers & Co. “are acceptable.”
The investor group told the judge Tuesday that it was conveying to Sallie Mae in writing the group’s waiver of “any and all of their rights under the merger agreement ... that would in any way inhibit Sallie Mae from conducting its business or pursuing its strategic alternatives.” The conditions being dropped from the agreement prohibited Sallie Mae, among other things, from negotiating with other possible buyers, pursuing its own potential acquisitions, buying back shares and other corporate activities.
The judge, Vice Chancellor Leo E. Strine Jr., has been considering Sallie Mae’s request for an accelerated trail against the investor group, which includes Bank of America Corp. and JPMorgan Chase & Co., to force them to complete the deal at the original $60-a-share cash price agreed upon in April or pay a $900 million breakup fee.
Strine said Monday that if the two sides didn’t achieve a written agreement, he would set an early trial date for January. Strine indicated at a meeting Wednesday with attorneys for the parties that since the two sides had agreed, albeit in separate letters to him, the next step was to set a normal trial schedule, according to the letter to the judge from the attorney for Sallie Mae, Andre G. Bouchard.
Reston, Va.-based Sallie Mae had argued that the conditions of the buyout pact are harming it, tying its hands in conducting business activities and necessitating an expedited trial of its lawsuit against the investor group led by J.C. Flowers & Co. The company says it has been receiving expressions of interest from other potential suitors.
Sallie Mae and the investor group have been feuding for months over terms of what would be one of the world’s largest private-equity takeover deals.
The investor group maintains that a “material adverse effect” has occurred, and therefore it should not have to pay the fee.
The investors argue that student-loan legislation signed into law last month by President Bush, and weaker economic conditions, have had a significant negative impact on Sallie Mae that justifies nullifying the deal and makes the original price unacceptable. The group briefly offered to pay $50 a share in cash, plus other incentives, but that proposal lapsed Oct. 9.
At issue is the two sides’ conflicting interpretations of their April buyout agreement, under which significant negative developments can nullify the deal. Sallie Mae has insisted that the anticipated reduction in earnings resulting from the new student-loan law does not rise to that level of significance.
The law cuts about $20 billion in federal subsidies to companies like Sallie Mae that make student loans while halving the interest rate on government-backed student loans.
