bloggingbuyouts

Wall Street has its own brand of breaking up. There may not be 50 ways but there are at least two -- the easy way and the hard way. According to the New York Times, KKR and The Goldman Sachs Group (NYSE: GS) are splitting with Harman International (NYSE: HAR) the easy way, while J.C . Flowers is taking the hard route to killing its deal with SLM Corp (NYSE: SLM).

The easy way, in the Harman case, is for the buyers to buy $400 million worth of Harman bonds instead of paying $8 billion to own the company. Under the new agreement, the buyout deal struck in April will be dissolved, with no litigation or payment of the $225 million termination fee. Instead, KKR and Goldman will buy bonds that can be exchanged for Harman shares at $104, below the $120-a-share price of the original offer -- but much higher than its current $85.87.

Harman gets some cash and saves face while KKR and Goldman get out of investing in a cratering company -- HAR's earnings of 50 cents a share for the most recent quarter are expected to be less than half of the $1.02 analysts had forecast.

The New York Times [registration required] reports that J.C. Flowers, the private equity firm that announced it was pulling out of its deal to buy SLM Corp. (NYSE: SLM), has changed its mind. Flowers is now offering $50 a share in cash, 10% below its original $60 a share offer for the student lender.

But J.C. Flowers has offered a kicker: warrants to buy SLM shares, which it claims could eventually be worth as much as $10 a share if SLM meets or exceeds its earnings projections. Warrants, which give their owners the right to buy shares at a specific price, are sometimes used in bankruptcy cases as a way to repay creditors. The idea is that if the company fares better than expected, warrant holders can share in the profits by exercising the options. But a few hours ago SLM announced it rejected the offer.

According to its statement, J.C. Flowers wanted out because of a law signed by the president which limited government reimbursement of student loans. But SLM countered with a statement reaffirming its rights under the merger contract. So what does the cash and warrants deal mean? It could be seen as a clever way to tie SLM's sale price to its business prospects. Or it may be an attempt to buy SLM on the cheap while claiming to stand by its previous bid

For the past few years, things have been nearly perfect for the private equity world. Credit was cheap and public companies were certainly willing to go private.

But, of course, things are much different now. In fact, there is some doubt that mega deals -- such as for TXU Corp. (NYSE: TXU) and SLM Corp. (NYSE: SLM) -- may not get done because of the tough credit environment.

However, can buyers legally walk from a deal?

In the $25 billion buyout of SLM Corp (NYSE: SLM), also known as Sallie Mae, the buyers -- J.C. Flowers, Friedman Fleischer & Lowe, Bank of America (NYSE: BAC) and JP Morgan Chase & Co. (NYSE: JPM) – used the legal services of Wachtell Lipton Rosen & Katz as well as Sullivan & Cromwell LLP.

Well, it looks like it was money well spent. According to a report in The Wall Street Journal, it looks like the SLM deal may come undone because of proposed legislation in Congress that would curtail the school loan industry. The private equity firms believe it would be a violation of the merger agreement. However, SLM disagrees. So, this could lead to even more legal fees and litigation.

SLM's stock is down about 8.65% to $52.80. The current buyout offer is $60 per share.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.