There have been rumors and press reports for a couple of weeks that the J.C. Flowers deal to buy student loan company SLM Corp. (NYSE: SLM), better known as Sallie Mae, might fall apart. Finding debt to close the purchase of the company was getting tough.
Yesterday, the rumors become news. Flowers backed out of its commitment. The Wall Street Journal writes that, "Mr. Flowers informed a group of UBS bankers that he wasn't prepared to pay the $60-a-share price he had agreed to in April." UBS is Sallie Mae's banker.
Flowers may simply be fishing for a price lower than his first offer. With its stock price at risk, the SLM board might be tempted to take a reduced price.
The buyout firm is arguing that legislation which could hurt the student loan market amounts to a "material adverse effect" to the deal, and that this gives Flowers the legal right to walk away.
The SLM board does not have any good choices. It could sue Flowers to complete the deal, and it probably should. But, as the legal fight drags on, shares in the student loan company are likely to fall. That leaves the board between Scylla and Charybdis.
Douglas A. McIntyre is a partner at 24/7 Wall St.
