Lordly Sallie Mae Payout Hangs in the Balance

RESTON, Va. – Shares in Sallie Mae continued to trade around $48 Friday, a 20% discount from the $60-a-share offered by a group of hedge funds and banks, as arbitragers speculate that pending government cuts in student loan subsidies will kill the $25 billion deal. At stake is a $230 million payout for Sallie Mae’s Chairman Alfred Lord, the man who built the student loan giant from a sleepy government sponsored enterprise. Lord realized a profit of $34 million August 9 with the exercise of 1.7 million options due to expire August 13, followed by the sale of 1.2 million of the shares on the open market. Two of the nation’s largest banks, JP Morgan Chase and Bank of America, along with hedge funds J.C. Flowers & Co. and Friedman Fleischer & Lowe, are reported to be hesitant completing the deal in light of the subsidy cuts–even after Sallie Mae shareholders voted last Monday to approve the takeover.