Sallie says deal to close but buyer source disagrees

NEW YORK (Reuters) - U.S. student lender Sallie Mae SLM.M said on Monday its $25 billion deal to be acquired a group of private equity firms and banks should be consummated in October 2007.

But a source close to the buyout group maintained that closing conditions of the deal may not be met and that Sallie Mae’s statement suggesting an October closing was issued without consultation with the buyers.

Sallie Mae accepted a $60-a-share leveraged buyout proposal from J.C. Flowers & Co., Friedman Fleischer & Lowe, Bank of America BAC.N and JPMorgan Chase JPM.N in April.

But last month, the buyers threatened to scuttle the buyout, blaming proposals to cut government subsidies to student lenders.

Doubts about the deal have seen the student lenders’ shares trading way below the offer price, and analysts have been predicting that the $25 billion price tag could be negotiated down by the buyers.

But Sallie Mae said in response to numerous inquiries about the deal, that the merger “can and should” close in October.

Sallie also reaffirmed its confidence that legislative proposals currently being considered by the U.S. Congress would not, if enacted, constitute a material adverse effect under the merger agreement.

Sallie Mae shares rose to $50.25 in after-hours trading after closing at $49.21 on the New York Stock Exchange. However, that was still far below the buyout group’s $60-a-share offer price.


The student lender, whose official name is SLM Corp, said it has been advised by the buyers that the Federal Deposit Insurance Corporation (FDIC) is likely to approve the transfer of Sallie Mae Bank in September.

If FDIC approval is not obtained by then, Sallie Mae said it believes it can take steps that will trigger the buyers’ debt marketing period beginning in September.

Subject to shareholder approval, all other material conditions to closing the transaction will have been met on August 15, Sallie Mae said.

A special meeting of shareholders to vote on the takeover is scheduled for August 15.

On July 11, Sallie Mae said the buyers believed that current legislative proposals “could result in a failure of the conditions to the closing of the merger to be satisfied.”

Sallie Mae said on July 11 it disagreed with this assertion and that it intended to proceed toward closing of the transaction.

On Monday, the source close to the buyout group said the buyers disagree with Sallie’s characterization of the merger agreement and that the group stands by its previous statements on the possibility that the conditions to closing may not be met.

The Sallie Mae deal has a break-up fee of $900 million, but if the buyers could prove that legislation has a “material adverse impact” on the transaction, they would not have to pay the fee.