Sallie Says Flowers Won't Renegotiate $25 Bn Buyout

By Mark McSherry

NEW YORK (Reuters) - Sallie Mae (SLM.N) said on Wednesday a consortium led by private equity firm J.C. Flowers rejected an offer to renegotiate its disputed $25 billion buyout of the student lender, sending its shares down about 10 percent.

Sallie Mae, legally known as SLM Corp, also cut its earnings forecast for 2008 in the wake of higher loan facility charges. It now expects to earn between $2.60 and $2.80 per share, down from a previous forecast of $3.25.

The student lender said it offered to consider an alternative transaction with the Flowers consortium, but that the group declined the offer. Sallie Mae shares were trading down more than 10 percent at $28.66 on Wednesday afternoon.

Sallie Mae is embroiled in a court battle with the consortium that agreed to buy the student lender for $60 a share in cash last April but later said it wanted to terminate the transaction.

The consortium, which also includes JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) argues Sallie Mae has suffered a "material adverse change" to its business due to a serious credit market squeeze and legislation that slashes subsidies to student lenders.

Sallie Mae disagrees and has filed a lawsuit seeking a breakup fee of $900 million from the consortium.

DECLINED

A source close to the buyer's group said on Wednesday that based on Sallie Mae's statements and actions, it did not believe it would be able to make a new offer at a price the student lender would accept and it therefore declined Sallie Mae's offer.

"Further, the fact that Sallie Mae has lowered its 2008 core earnings per share guidance confirms the buying group's view that Sallie has suffered a material adverse effect in its business," the source added.

Sallie Mae said on Wednesday its board remains committed to protecting the rights of shareholders and will pursue all available recourse, including the existing lawsuit.

The student lender said it has indications of interest from 10 financial institutions for new secured warehouse funding of over $30 billion.

Further, Sallie Mae on Wednesday estimated its fourth-quarter earnings at 52 cents to 57 cents a share. Analysts' average forecast is 71 cents, according to Reuters Estimates.

(Reporting by Mark McSherry, Dane Hamilton and Dan Wilchins, editing by Dave Zimmerman)