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Wednesday, October 24, 2007

SLM: The Latest Flowers Letter.

Yesterday, the Flowers group sent the following letter to VC Strine: 

The Honorable Leo E. Strine, Jr.

Dear Vice Chancellor Strine:

We write on behalf of J.C. Flowers II L.P., Bank of America, N.A., JPMorgan Chase Bank, N.A, Mustang Holding Company Inc. and Mustang Merger Sub, Inc. (collectively, the "Buying Group").

Pursuant to the Court's directions at the status conference yesterday, our clients will today deliver to Sallie Mae waivers of any and all of their rights under the Merger Agreement and a related asset backed security underwriting engagement letter that would in any way inhibit Sallie Mae from conducting its business or pursuing its strategic alternatives. The waivers are based upon drafts provided to us by Sallie Mae. All of the provisions that Sallie Mae requested the Buying Group to waive have been waived. The Buying Group has the power to waive these provisions unilaterally under Section 11.04 of the Merger Agreement. Copies of the forms of waiver are enclosed.

We did attempt to negotiate a mutual agreement with Sallie Mae but were not able to reach closure within the timeframe allotted. In our initial discussions, Sallie Mae objected to a handful of provisions that made clear that the parties' other rights and obligations were unaffected. We believe that these objections are unfounded; all of the relief that Sallie Mae sought is provided for in the waivers that have been provided. Our only objective is to ensure that Sallie Mae does not use the waivers as a basis for claiming that the Buying Group has prejudiced its defenses or that, as a result of the waivers, the Buying Group has new obligations to Sallie Mae. We are available to discuss this or any other matters at the Court's convenience.

Respectfully, David C. McBride

One can wonder what the impasse is and clearly Flowers is posturing, but my bet is that SLM is angling for a quick decision by refusing to agree to a Jan trial and otherwise to an agreement with respect to Flowers et al.'s merger agreement waivers.  In this vein, I reread the transcript again and note the following: 

THE COURT:  If you don't have it all worked out, then I'm going to give you a trial. I'm not going to pick one of the weeks in January now, but that will be the situation. I think if we are -- if we are going forward in a normal time frame, the parties are really -- I'm not saying if you don't come to me jointly, upon reflection, and say -- that you think it would be useful as a business matter for me to do this summary judgment thing -- I'm not saying I won't consider that.

VC Strine is clearly going back and forth in his mind about what he wants to do, though it appears that he is leaning towards a trial if the parties don't agree to a summary disposition.  Still, SLM is likely to continue to argue for this route.  Expect them to raise it again at the next hearing.  But given the tenor of Strine's thoughts, I would expect him to disagree if Flowers objects -- this litigation is likely for a Jan trial. 

Most importantly, stay-tuned for another hearing in the next week or so.  Everyone had great fun reading the hearing transcript yesterday (See the WSJ posts here and here), so a trial could turn out to be the most exciting M&A litigation in Delaware since Viacom -- the original Deal From Hell -- though, here only $900 million is at stake. 

http://lawprofessors.typepad.com/mergers/2007/10/slm-the-latest-.html

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