Thursday, September 20, 2007

Sallie Mae

SLM (48.55) has an offer of $60 on the table by buyout group JC Flowers. Flowers wants to pay a lower price. If they walk away, they have to pay $900 million. So they renegotiate, by threatening to walk away from something they can't. President Bush is expected to sign into law a new bill that reduces subsidies to student loan lenders. Since it passed the Senate 79-12 and the House 292-97 it's not very controversial. SLM says it could crimp profits for the next four years by less than 10%. That wouldn't trigger a material adverse change (MAC) for the buyout.

But credit conditions have tightened, and it's it everyone's interest to get the deal done. Bush will have a bill signing ceremony in the next few days. After that, look for the buyers of Sallie Mae to come up with a lower price and an acceptance of it by SLM. I think the deal gets done at $55, and the stock's a buy.

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