RESTON, Va. - SLM Corporation, commonly known as Sallie Mae, learned yesterday that the PHEAA Board of Directors rejected its $1 billion offer to combine certain business operations with PHEAA in Pennsylvania. A statement by Sallie Mae Vice Chairman and CEO Albert L. Lord follows:
"We are disappointed but not disheartened that PHEAA dismissed ourproposal out of hand. However, we so believe in the value of this businessproposition for all parties that we do not retract our offer but rather seek afairer hearing of its details. PHEAA's statement greatly distorts the intentand structure of the proposal, which is reprinted below."
Lord continued, "When fairly evaluated, Commonwealth taxpayers will be $1billion better off and Pennsylvania students will benefit from even lowercollege costs as a result of the proposed transaction."
The following is a reprint of a letter sent on Dec. 14, 2004 from SallieMae Vice Chairman and CEO Albert L. Lord to Richard E. Willey, president andCEO, PHEAA.
December 14, 2004 Mr. Richard E. Willey President and Chief Executive Officer Pennsylvania Higher Education Assistance Agency 1200 North Seventh Street Harrisburg, PA 17102 Dear Mr. Willey: This letter follows our several conversations over the past year about thestudent loan market in Pennsylvania and proposes a bold partnership designedto strengthen our two organizations, bring even better service to students andschools and add over one billion dollars of financial resources to theCommonwealth's higher education efforts. We propose to combine the sale of PHEAA's non-financial assets to SallieMae (and an indirect interest in PHEAA's financial assets) with a five-year,annually renewable guarantor and loan servicing contract. Consideration wouldbe in the form of an up-front cash payment of $500 million and five annualpayments of $100 million each. Sallie Mae would assume operating control ofPHEAA while the PHEAA Board of Directors would retain policy control. Astreamlined PHEAA management group would oversee the servicing contract withSallie Mae. PHEAA's student benefit programs would remain unchanged. Infact, student discounts and grants could be increased very significantly forthe foreseeable future if the deal proceeds were so applied. Management ofthe state grant programs could be retained by PHEAA or otherwise outsourced toavoid the appearance of any conflict of interest. Sallie Mae would agree to keep total state employment levels at or abovethe approximately 2,800 persons today employed by the two entities. Thisworkforce would enjoy the same generous package of benefits and stock optionsthat are shared by rank and file employees throughout our organization. The contract would contemplate specific growth targets so that PHEAA'sguarantee business and earnings will grow throughout the original and extendedcontract term. We have an unbroken record of success in executing numeroustransactions in the student loan industry where we have acted as marketingagent or retained a purchased brand and greatly enhanced market penetration.For example, at America's largest guarantor, USA Funds, we have increasedtheir annual guarantee growth from 4% to more than 15% per year. After our1999 Nellie Mae acquisition, its loan origination volume increased from $200million annually to over $1 billion. In the aggregate, our strategictransactions with non-profit student loan businesses have also provided nearly$2 billion of up-front funding for five separate higher education foundationsacross the country. Under the proposed transaction, PHEAA could immediately infuse significantcash into the Commonwealth's higher education system by releasing the currentand future value trapped inside PHEAA today. We read that budget strains havecaused Pennsylvania to reduce its support of its public universities(including my alma mater, Penn State) and student grants cover a shrinkingportion of soaring tuition costs. A Sallie Mae transaction wouldsignificantly improve the Commonwealth's higher education financial picture. Dick, each of our organizations has a long and prominent history inPennsylvania and in the past we have partnered in significant transactions.We recognize that we are putting forward today a much broader partnershipconcept. We will be happy to furnish details of this offer to you and youragents, explore possible alternative structures and negotiate terms. Weencourage you to engage professional investment counsel to assist your Boardand other interested Commonwealth parties in evaluating the proposal in atimely manner. We appreciate the difficulty of maintaining confidentiality inthis circumstance, particularly to the extent your Board deliberations areopen to the public. As you know well, we operate in the intersection of thepublic and private sectors and our transactions attract appropriately intensescrutiny. We welcome that scrutiny and look forward to discussing thistransaction with you. Sincerely, Albert L. Lord cc: PHEAA Board of Directors
SLM Corporation, commonly known as Sallie Mae, is the nation'sleading provider of education funding, managing more than $98 billion instudent loans for more than 7 million borrowers. The company primarilyprovides federally guaranteed student loans originated under the FederalFamily Education Loan Program (FFELP), and offers comprehensive informationand resources to guide students, parents and guidance professionals throughthe financial aid process. Sallie Mae was established in 1973 as a government-sponsored enterprise (GSE) called the Student Loan Marketing Association, andbegan the privatization process in 1997. Since then, the parent company namehas changed, most recently to SLM Corporation. Through its specializedsubsidiaries and divisions, Sallie Mae also provides an array of consumercredit loans, including those for lifelong learning and K-12 education, andbusiness and technical products and services for colleges and universities.More information is available at http://www.salliemae.com. SLM Corporation andits subsidiaries, other than the Student Loan Marketing Association, are notsponsored by or agencies of the United States.
