Bernanke can't revive LBOs: Sallie Mae (SLM) deal cratering

Posted Sep 20th 2007 9:51AM by Peter Cohan
Filed under: Employees, Private Equity, Market Matters, SLM Corp (SLM)

Despite a 50 basis point drop in the price of money, the Bernanke bailout is not helping the LBO market much. The New York Times [registration required] reports that a $25 billion deal to take student loan bundler Sallie Mae parent SLM Corp. (NYSE: SLM) private is on the skids.

Meanwhile, Bloomberg News reports that the negative side effects of lower interest rates is helping weaken the dollar. This morning it hit a record low of $1.40 relative to the euro. This may actually be good news for companies that derive a significant portion of their revenues from overseas -- particularly in Europe. But as someone who is thinking about taking a trip to Europe next year, I am concerned about how outrageous the prices there will seem to me.

J.C. Flowers, the firm spearheading the SLM buyout, may be willing to walk away from the deal and pay the $900 million breakup fee. Sallie Mae stock now trades 17% below its 52-week high of $58, probably because the market anticipates the deal will either fall apart or be concluded at a much lower price.

Meanwhile, Flowers may seek to trigger a contract clause to get out of the break up fee -- claiming that legislation reducing subsidies to student lenders represents a Material Adverse Change (MAC) -- which could entitle him to back out of the deal.

I doubt that MAC clause will save Flowers from paying the $900 million if it backs out of the deal. But if its deal for Sallie Mae falls apart, I think it will hammer the nails in the coffin of this decade's LBO boom. And that's a MAC I can understand!

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Sallie Mae.

Tags: currency, dollar versus euro, DollarVersusEuro, inthenews, jc flowers, JcFlowers, leveraged buyout, LeveragedBuyout, sallie mae, SallieMae, slm

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Reader Comments (Page 1 of 1)

9-20-2007 @ 10:34AM

MTfunds said...

Where can we purchase euros at? If we go to the bank can they convert our dollars to euros?

9-20-2007 @ 10:42AM

Dan Barnett said...

MT, You don't want to use your local Bank for currency exchanges as the rates they charge are not necessarily the ones listed & are often (much) higher. For getting some cash to use on your vacation, the Bank is fine, but investing/speculation nah.

9-20-2007 @ 10:56AM

MTfunds said...

Dan, Thanks I checked with my local bank and they will order euros in $250.00 bundles. I do like to buy foreign currency to hold, not in large amounts or anything but I do want to buy and hold. It's paper but if I buy it and hold it, it's tangible and with the weakening dollar I just want some more foreign currency to add to my small collection.