Sallie Mae's stock price soared Wednesday after its chief executive announced his imminent departure, quelling a long dispute over the future of the government-sponsored enterprise.
Lawrence A. Hough, who has headed Sallie Mae since 1990, will step down after privatization of the company. Wall Street's reaction was ebullient: The shares rose $6.125 to close at $126.625 in Wednesday's trading, a 5.1% gain.
"I think it's wrong to ascribe the stock rise to Larry Hough's resigning," said analyst Peter A. Russ of Shelby Cullom Davis. "It's more that there is now an opportunity for both sides to get together and unlock the value of Sallie Mae."
Sallie Mae, formally known as the Student Loan Marketing Association, has been racked by controversy as dissident shareholders, known as the Committee to Restore Value, wrestled with management over the company's direction.
The committee has pushed for Sallie Mae to enter the loan origination business as a direct competitor of banks. Presently Sallie Mae buys student loans issued by banks.
The committee has never gotten a majority of shareholders to support its strategy. Mr. Hough has viewed a move toward originations as risky, potentially souring relations with its bank clients.
"We view the market's reaction as a clearly positive signal that the deadlock has been broken by the company's decisive action," said Mr. Hough, who will remain with Sallie Mae until a successor is named. "There will be a convincing resolution putting the turmoil of the past two and a half years behind us."
The Committee to Restore Value will get five of 15 board seats, a gain of three seats.
Sallie Mae also said Wednesday that David J. Vitale, vice chairman of First Chicago NBD Corp., will become board chairman.
A possible resolution to the battle came as good news to the market. Mr. Russ has a $160 to $180 target price for the stock.
Thomas O'Donnell of Smith Barney said a move to originations is "controversial but seen as a positive." He reiterated his "buy" rating, setting a near-term target of $140, with the stock rising to nearly $300 in three to five years.
Elsewhere Wednesday, bank shares generally tracked the rest of the market.
The S&P bank stock index was up nearly half a percentage point, as were the Dow Jones industrial average, which gained 36.56 points, to 7,575.83, and the S&P 500.
Morgan Stanley, Dean Witter, Discover & Co. upgraded First American Corp., Nashville, to "outperform" from "neutral." The stock rose $1.50, to $39.25, nearly a 4% gain.
The company downgraded shares of First Virginia Banks Inc., Falls Church, to "neutral" from "outperform." Its shares rose 37.5 cents, to $57.125. Senior regional bank analyst David Hilder said, "The stock price reflects the good performance First Virginia has been turning in."
