24/7 Wall St.

When JC Flowers waked away from its $60 bid for Sallie Mae (SLM) and then returned with a lower bid, Wall St. questioned whether the company’s board had any recourse. Take the lesser deal or take nothing at all.

Well. SLM’s three largest institutional shareholders have come out and said that they back the company on its position that the $60 bid in binding. That means that deep pocket funds may be willing to take Flowers to court.

According to The New York Post, "at least three big shareholders, including the company’s largest holder on record, have indicated that they stand behind SLM in its effort to block Flowers from cutting the takeover price they agreed to in April." One of the three, Capital Guardian Trust Company, is a large and powerful player in the fund business. Another QVT ventures has written "We believe that the J.C. Flowers-led consortium’s attempt to renegotiate the acquisition of Sallie Mae represents a situation in which the buyer is extraordinarily poorly placed to demand a reduction in the purchase price."

Flowers is probably in real trouble now. SLM and the three funds could certainly mount a spirited series of lawsuits against the private equity fund and cost it a great deal in legal fees. It would also do real damage to Flowers’ reputation as a firm that can be counted on to do what it says it will.

Looking back, Flowers management may well see that it has made a big mistake.

Douglas A. McIntyre

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