Sallie Mae Knows Her Merger Is Toast (SLM, JPM, BAC)

SLM Corp. (NYSE:SLM), or Sallie Mae, has announced that it has been informed by a representative of the buyer group led by J. C. Flowers, Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) that the buyer group does not expect to consummate the acquisition of Sallie Mae under the terms of the merger agreement. Sallie Mae firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law.

Sallie Mae says it believes legislation being enacted would reduce "core earnings" net income, between 1.8 percent and 2.1 percent annually over the next 5 years, using business assumptions it has shared with the buyer group.  Considering the roughly 30% arbitrage spread in this merger, this was fairly easy to guess.  in fact, we’ve covered it.  Shares are now down 3% at $44.75 on the day and now just a few percent above when this merger first came up in April.

The Sallie Mae termination fee on last look was in the $900 million range, but we’ll have to confirm that.  That won’t be a bad payday for Sallie Mae compared to the $18.5 Billion market cap.  We speculated that others were at risk just on Monday, and here are other related notes:

• Which Private Equity Deal Fails Next?
• KKR & Goldman Ditch Harmon
• Sallie Mae Merger Begins To Unravel
• More Exchange Mergers Coming?

Jon C. Ogg
September 26, 2007

Jon Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.