Sallie Mae Surges as Renegotiation on Giant Deal Beckons

RESTON, Va. – Shares in Sallie Mae rose more than 9% yesterday, even after a buyout group walked away from its $25 billion takeover but left the door open to a lower acquisition price. The group, which include private equity fund J.C. Flowers & Co. and bank giants JP Morgan Chase and Bank of America, said in a statement, “We have told representatives of the Sallie Mae board that we are open to discussing a revision of the transaction that reflects this new environment." The statement came after the student lender insisted the group should stand by its $60-a-share offer, even after new legislation, signed yesterday by President Bush, will cut heavily into lender subsidies and guarantees. Sallie Mae said it measured the impact of the new law against that of similar legislation described during negotiations on the huge takeover and concluded the changes would reduce "core earnings" net income by only 1.8% to 2.1% annually over the next 5 years, not enough to qualify as a material adverse event needed to terminate the buyout agreement. The buyout group could be forced to pay a $900 million break-up fee if the deal doesn’t go through. Salle Mae shares closed up $4 yesterday at $49.12, still 18% below the agreed-upon price.