October 2, 2007
Sallie Mae Deal Heads to Court
The private equity group that has signed a buyout deal with Sallie Mae has offered a lower price and Sallie Mae has refused. Sallie Mae wants the original price. The buyer will allege that new legislation limiting government subsidies for student loans is a "material adverse change." Sallie Mae will counter that the buyer is using the new act as a pretext to bail because the buyer's financing has become more expensive since the deal was inked. I have come to believe that the negotiators of buyouts and other major market events such as IPOs spend most of their time on the upside potential of the deals and little time on legal provisions limiting downside risk. The downside stuff is left to "form agreement" debates among lawyers and resolved by "street" standards. Only when the market goes sour do the documents matter. Those who understand the documents, the M&A hedge fund arbs, can make a buck betting on court outcomes.
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I still think JPMorgan and BofA are trying to pressure Sallie Mae into lowering the price, but Sallie Mae refuses to budge. According to NewsVisual, Sallie Mae has pretty strong ties to both JPMorgan and BofA http://www.newsvisual.com/newsvisual/2007/09/jp-morgan-and-s.html . Isn't it possible that they could use these ties to pressure Sallie Mae on several different fronts?
Posted by: Jason | Oct 2, 2007 5:45:26 PM