October 8, 2007
SLM Sues in Delaware
The press release is set forth below. I had predicted earlier today that something would happen before the Thursday earnings call, but I am a bit surprised that it went to litigation so fast. That it has come to this I believe reflects the strong position of Flowers et al. that a material adverse change to SLM has occurred. It is a judgment I generally concur with based on the public facts. A reporter earlier tonight informed me that Flowers is responsible for $450 million of the termination fee among the three buyers if they are required to pay the $900 million to SLM. This is a huge liability for them -- and their limited partners would not be particularly happy if they are required to pay it. That Flowers and the other buyers would let this risk come to pass not only reflects their position but how far apart SLM and Flowers et al. are in the renegotiation's. While this is yet another move in the chess game by SLM, it still appears to be a bit to go before a settlement -- and the settlement increasingly appears to be a lump sum payment on a risk-adjusted basis of the $900 million rather than a completed deal. As usual, I'm rooting for a Delaware opinion to further fill out the Delaware law on what constitutes a MAC. I'll have more tomorrow once I obtain a copy of the complaint. Hopefully, it will not be a bare-boned complaint and reveals some more information on SLM's position. Here is the press release.
RESTON, Va., Oct. 8, 2007—SLM Corporation (NYSE: SLM), known as Sallie Mae, announced today that it has filed a lawsuit in Delaware Chancery Court against the buyer group, which includes J.C. Flowers & Co., JPMorgan Chase and Bank of America. The lawsuit seeks, among other things, a declaration that the members of the buyer group have repudiated the merger agreement, that no Material Adverse Effect has occurred under the merger agreement, and that Sallie Mae may terminate the merger agreement and collect damages of $900,000,000. On October 3, 2007, Sallie Mae notified the buyer group that all conditions to closing of the merger had been satisfied, and set November 5, 2007 as the closing date of the merger. In response, the buyer group sent a letter to Sallie Mae on October 8, 2007 asserting that the conditions to closing of the merger have not been satisfied because of, among other things, the alleged occurrence of a Material Adverse Effect under the terms of the merger agreement.
Albert L. Lord, Chairman of Sallie Mae’s Board of Directors, said “We regret bringing this suit. Sallie Mae has honored its obligations under the merger agreement. We ask only that the buyer group do the same. We are prepared to close under the contract the parties signed in April.”
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