WASHINGTON
Sallie Mae insisted Tuesday that the investors reducing by 17 percent their cash offer for the nation's largest student lender honor their original $25 billion deal.
The investor group, led by private equity firm J.C. Flowers & Co. and including Bank of America and JPMorgan Chase, said the student-loan legislation signed into law by President Bush last week, and weaker economic conditions, made the $60-a-share price agreed upon in April unacceptable.
The group sent its revised offer to the board of the company, formally called SLM Corp., saying that $50 a share now "appropriately and fairly reflects the new economic and legislative environment that faces the company."
Under the new offer, worth about $21 billion in cash and good until next Tuesday, Sallie Mae has the potential to receive an additional payment of more than $7 a share if the company performs on track with its own projections. It could receive an extra $10 a share if the company exceeds those expectations.
Sallie Mae came back with a terse statement, saying it expects Bank of America Corp. and JPMorgan Chase & Co. "to honor that contract, not breach the contract," which calls for the deal to be closed later this month.
Shares of Reston, Va.-based Sallie Mae fell 15 cents, or 0.3 percent, to $49.75 in afternoon trading.
The new student loan law cuts about $20 billion in federal subsidies to companies like Sallie Mae that make student loans while halving the interest rate on government-backed student loans. According to Sallie Mae, the new student loan law will reduce its net income between 1.8 percent and 2.1 percent each year over the next five years.
The investor group's view is starkly more pessimistic: it forecasts a cut in profits of 14.4 percent in 2009 and 20.1 percent in 2012.
In a letter to Sallie Mae's board, the head of the Flowers firm, J. Christopher Flowers, said the revised offer represents "a significant premium to what the company's unaffected share price would likely be based on historical trading ranges and current market conditions."
