Sallie Mae to sell itself in $25 billion LBO

By Dan Wilchins

NEW YORK (Reuters) - Sallie Mae, a student loan company under fire from regulators and lawmakers, said on Monday it had accepted a $25 billion takeover bid from two private equity funds, JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research, Stock Buzz) and Bank of America Corp. (BAC.N: Quote, Profile, Research, Stock Buzz)

The deal, the largest U.S. private equity buyout in the financial sector, values Sallie Mae (SLM.N: Quote, Profile, Research, Stock Buzz) at $60 a share, or more than 25 percent higher than its closing price on Friday.

Sallie Mae is selling itself during a difficult time for the student loan industry. Attorneys general in states, including New York and Connecticut, are probing whether lenders have been offering kickbacks to universities for steering business their way.

The Democratic-controlled House of Representatives and Senate are considering laws that could reduce Sallie Mae's profit growth. President George W. Bush proposed in February to slash subsidies to student lenders. Sallie Mae's shares fell more than 15 percent between November and last Thursday.

The political landscape is always an issue for Sallie Mae and the government has the right to change how it helps students pay for education, said J. Christopher Flowers, one of the investors in the deal.

"We understand and respect that. That's just part of doing business in this landscape here," Flowers told Reuters.

If Sallie Mae can move past its current political and regulatory straits, it could perform well longer term, said Colin Blaydon, a professor at Dartmouth's Tuck School of Business who helped set up Sallie Mae in the 1970s.

"This is an expanding market. College prices are rising, and students need financing," Blaydon said.