Sallie Mae saga shows takeover market cooling down

A group of private equity firms and banks have threatened to scuttle their planned $25 billion buyout of Sallie Mae, the student lender said on Wednesday, in the most dramatic sign yet that a once-booming takeover market may be cooling.

The Sallie Mae buyers blamed proposals to cut government subsidies to student lenders, but analysts said the group may want an excuse to pull out or to negotiate a lower price given recent difficulties in raising financing in the debt market.

In another sign that buyers may be holding back, General Electric Co and Abbott Laboratories Inc said on Wednesday they terminated a proposed $8 billion deal for the sale of two Abbott diagnostics units to GE, saying they were unable to agree on terms.

Sallie Mae - whose official name is SLM Corp - in April accepted a $60-a-share leveraged buyout proposal from private equity firms J.C. Flowers & Co and Friedman Fleischer & Lowe, as well as JPMorgan Chase & Co and Bank of America Corp.

SLM's shares fell almost 10 percent to $52.15, way below the offer price, on the New York Stock Exchange after the news.

On Wednesday, Sallie Mae said the acquiring group said it believes that current legislative proposals "could result in a failure of the conditions to the closing of the merger to be satisfied."

Sallie Mae said it "strongly disagrees with this assertion" and "intends to proceed towards the closing of the merger transaction as rapidly as possible, and will take all steps to protect shareholders' interests."

The US House of Representatives voted on Wednesday to slash federal subsidies paid to college student loan companies.

The takeover agreement allows the buyers to pull out of the deal if legislation has an impact worse than Sallie Mae disclosed in regulatory filings.

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

A collapse of the Sallie Mae buyout could rattle financial markets already jittery from rising subprime mortgage defaults and the recent collapse of several hedge funds.

Agencies

(China Daily 07/13/2007 page16)