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!