Sallie Mae shares gained ground Thursday after Institutional Investor Services endorsed dissident shareholders in the student lender's proxy contest.
The company, formerly the Student Loan Marketing Association, has been racked by internal feuding since 1995, when the dissident group of board members and shareholders, called the Committee to Restore Value, began wrestling with management for control. The dissidents-led by Albert L. Lord, a former Sallie Mae chief operating officer and holder of 40,000 shares-were convinced the stock was undervalued. It was trading for about $35 at the time.
The endorsement was seen giving dissidents a big boost in the contest for control of the company, which is to be decided next Thursday, and the stock rose $3.625 to $144.875.
"We consider this very significant and believe it should carry the day for the CRV," said Thomas O'Donnell of Smith Barney. He reiterated his "buy" rating and raised his near-term target price to $165 from $150.
"It certainly improves the dissidents' position relative to management," said David Hochstim, a Bear Stearns & Co. analyst. "They're bound to get some votes they wouldn't have had."
Institutional Investor Services, a proxy advisory firm with 400 institutional investor clients, said management "has managed to keep the Sallie Mae ship afloat, but it has not demonstrated that it can do so without the CRV on board."
The report also said, "Our sources have become more vocal about the company's lack of interest in financial analysis, its unwillingness to discuss details regarding the cost of loan acquisition versus origination, and its lack of creativity ... Our sources credit the CRV with having saved the stock with its on-target strategies, as well as its pressure for a rational privatization bill."
The independent research firm reversed its opinion of two months ago, when it recommended management. Gisela Vallandigham, a Sallie Mae spokeswoman, said she "remains confident that ISS clients will continue to support the Sallie Mae majority slate," i.e., management.
Elsewhere, Lehman Brothers Holdings Inc., which rose more than 15% Wednesday on rumors that Chase Manhattan Corp. was buying it, lost about half of its gains as no deal was announced. The stock ended the day $4.06 lower at $47.93, a loss of 7.81%.
"This is how brokers are trading today," said Sallie L. Krawcheck, of Sanford C. Bernstein & Co. "They're not trading on fundamentals, they're trading on takeover rumors. The last time Lehman's stock jumped sharply was on J.P. Morgan & Co. rumors."
Ronald I. Mandle, a Bernstein banking analyst, said a Chase/Lehman combination would be a less-than-perfect marriage, and was unlikely. "There's no reality to that rumor. I don't think Lehman brings much to Chase."
Lehman's strength is in fixed-income trading, where Chase already has a strong presence, said Mr. Mandle. "Chase needs equity underwriting."
He said Donaldson, Lufkin & Jenrette Inc., another rumored takeover target, might be a better match, though the company has said it's not for sale. "Chase's strategy is to build internally," he said.
Jay Suskind, head trader for Ryan Beck & Co., West Orange, N.J., said rumor-mongering has intensified in recent years along with the enduring bull market. "You have liquidity, high volume, massive amounts of cash to move markets, and quicker information, with quotrons and computer trading ... People are sitting at home pressing buttons and calling discount brokers left and right."
The market took an early dive, but later recovered. Bank stocks turned in a strong rally toward the market's close.
The Standard & Poor's bank index outpaced the market's major averages, gaining 7.79, to 576.30, a 1.37% rise, while the broader S&P 500 index increased 3.72, to 940.28, a 0.40% gain. The Dow Jones industrial average of 30 blue-chip stocks rose 28.57 points to end the day at 8,116.93, a 0.35% increase.
