Clash of the titans to save Sallie Mae LBO

By Mark McSherry

NEW YORK (Reuters) - Some of the biggest players in the U.S. financial system may have to make major concessions to complete the $25 billion buyout of student lender Sallie Mae, but even then, the deal could end up in litigation.

Leveraged buyout star Christopher Flowers led the group of private equity firms and banks that agreed to pay $60 a share for Sallie Mae in April.

But since then, legislation slashing subsidies to student lenders and a serious credit squeeze have jeopardized the transaction.

Sallie Mae's stock has fallen below $49 as the market bets the deal will be renegotiated at a lower price.

The company, officially known as SLM Corp. (SLM.N: Quote, Profile, Research, Stock Buzz), had said on July 11 that the buyers believed the legislative proposals on student lender subsidies "could result in a failure of the conditions to the closing of the merger to be satisfied."

Sallie Mae disagreed.

Shareholders have already voted to accept $60 a share, and the student lender's chairman, Albert Lord, is known as an uncompromising figure who fights hard for his investors.

Described by some a "force of nature," Lord needs to see a solution that he can sell to shareholders.