Giant Sallie Mae Takeover Being Blown Up in Court

WILMINGTON, Del. – A powerful investors group yesterday countersued Sallie Mae in an attempt to walk away from a $900 million penalty for terminating a takeover of the student loan giant. The countersuit came just a few days after Sallie Mae filed suit to enforce the break-up fee, a common penalty in corporate takeovers. But the group, led by private equity fund J.C. Flowers & Co. and bank giants JP Morgan Chase and Bank of America, claims the newly passed student loan reforms that cut federal subsidies to lenders by billions of dollars qualify as a “material adverse effect” that entitles them to terminate the $25 billion deal. The investors have offered to amend the deal at $50 a share, down from the $60 they agreed to in April, but so far the Sallie Mae board has rejected the counter offer. The nation’s biggest student lender has asked the Delaware Chancery Court to enforce the $900 million penalty and to free it from both BofA and JP Morgan, its two largest competitors and lenders, to pursue other takeover proposals. Last week, Sallie Mae said a major write-down in the value of its derivatives, much of it equity-related hedges based on its falling stock price, caused it to book a $344 million loss for the fiscal third quarter.