Breaking Up Will Be Hard to Do, Expensive, Sallie Mae Tells Suitors

RESTON, Va. - Sallie Mae filed suit late Monday seeking a $900 million break-up fee from a group of investors that has balked at its $60-a-share, $25 billion takeover of the student loan giant. The suit comes after the group, headed by private equity fund J.C. Flowers & Co. and bank giants JP Morgan Chase and Bank of America, unilaterally terminated its agreement after passage of the student loan reform bill that will cut lender subsidies. The takeover group insists the new law amounts to a "material adverse effect" which will allow it to walk away from the deal. But Sallie Mae insists the new law will not have a material impact on its earnings, thereby obligating the group to pay a $900 million break-up fee for terminating the deal. Sallie Mae, formed by the government in 1972 to provide a secondary market for student loans originated by credit unions and banks, has since privatized and become the largest originator of student loans-in direct competition with its former credit union and bank customers. The two bank giants are the biggest competitors for Sallie Mae in the student loan market.