Private equity firm J.C. Flowers & Co. has said that it doesn't plan to
finish its purchase of
SLM Corporation (NYSE: SLM), more commonly called Sallie
Mae.
Sallie Mae was created with government support in 1972, though it
has been completely privatized since 2004. It manages more than $150 billion in
student loans.
The deal to buyout Sallie Mae at $60 per share was
announced this April and slated to be complete by next month. In a statement,
however, the J.C. Flowers firm, which heads a consortium of buyer including Bank
of American and JPMorgan Chase, said "that the conditions to closing under the
merger agreement, if the closing were to occur today, would not be satisfied as
a result of changes in the legislative and economic environment."
The
change in the legislative environment is a reference to new student-loan
legislation, which Bush just signed into law, that cuts $20 billion in subsidies
to Sallie Mae and other student-loan companies while balancing this measure by
drastically decreasing the interest rate on government-backed student
loans.
Sallie Mae still thinks the deal should be completed and has
released a statement warning it "firmly believes that the buyer group has no
contractual basis to repudiate its obligations under the merger agreement and
intends to pursue all remedies available to it to the fullest extent permitted
by law."
The upcoming battle to decide future ownership definitely makes
SLM a
stock worth watching!
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