The group that agreed to buy SLM Corp. is seeking court backing to pull out of the $25 billion deal that has been in jeopardy for months, saying the agreement's terms can't be met.
The declaration was made in court papers as the group answers SLM's suit to force the buyout's completion or payment of a $900 million breakup fee.
The group - consisting of private-equity firm J.C. Flowers, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) - claims the combination of weaker credit markets and a new federal law involving the student-lending industry represents a material adverse effect. That means the group would have no obligation to complete the deal under the previously agreed-to terms.
Earlier this month, the buyout group proposed a revised deal that cuts the offer price by $10 a share but replaces that with warrants with a payout of up to $10 a share. That offer has since expired. The initial deal called for a payment of $60 a share.
Shares of SLM were recently down $1.17, or 2.4%, at $47.28.
The buyout group has been arguing a material adverse effect has occurred, among other reasons, because a new student-lending law will affect the industry more than U.S. President George W. Bush's initial proposal on the issue. The law will result in an estimated $22.3 billion in subsidy cuts, versus Bush's proposal for $15.5 billion in reductions.
Coupled with the credit crunch, the group has estimated the new law will result in SLM's core earnings being 14% lower in 2009 and 20% lower in 2012 than forecasts given by company management when the deal was struck.
