MAJOR PAPERS:

• UBS AG (NYSE: UBS) is launching an initiative to reduce proprietary risk taking by its investment banking division, the Financial Times reported. In an internal memo, UBS CEO Marcel Rohner wrote that the bank would cut by 50% the number of its employees in its real estate and securitization division, and move its troubled mortgage investments into a separate unit.

OTHER PAPERS:

• The UK Times reported that British music company EMI Group PLC (OTC: EMIPY) has made a bid for Chrysalis, one of Britain's last big independent music companies.
• Student loan giant SLM Corporation (NYSE: SLM), also known as Sallie Mae, said it would lay off 350 employees, or about 3% of its workers, the Washington Post said.
• France Telecom (NYSE: FTE) CEO Didier Lombard said sales of Apple Inc's (NASDAQ: AAPL) iPhone device are going better than expected in France, the Associated Press reported.

SLM (NYSE: SLM) is recently at $20 in pre-open trading below its close of $22.13.

SLM said it will sell $2.5 billion in stock and other securities to raise cash needed to settle contracts under which it effectively bet that its own stock would not decline by a large amount in price.

Thomas Weisel lowered its price target on SLM from $31 to $25.

SLM January option implied volatility is at 79; February is at 85; above its 26-week average of 47 according to Track Data, suggesting larger price movements.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

SLM Corp (NYSE: SLM) is recently down $4.68 to $24.19. SLM hosted a shareholder conference call this morning. SLM call option volume of 14,266 contracts compares to put volume of 8,780 contracts. SLM January option implied volatility of 88 is above its 26-week average of 42 according to Track Data, suggesting larger price movements.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• As dozens of patents on drugs expire over the next five years, generics will replace about $70B of drug company sales, reported the Wall Street Journal. Those hard hit will include Pfizer Inc (NYSE: PFE), whose $13B sales cholesterol lowering Lipitor will face stiff generic competition, and Merck & Co Inc (NYSE: MRK), which will see generics battle against its three best sellers.
• Hopes for a $100B "super fund" to help ease a worldwide credit crisis, and the brainchild of Citigroup Incorporated (NYSE: C), Bank of America Corporation (NYSE: BAC), and JP Morgan Chase & Co (NYSE: JPM), has failed to attract significant interest parties to make it a reality, according to the Wall Street Journal.
• According to sources and reported by the FT's dealReporter, despite ongoing litigation, a consortium led by JC Flowers remains interested in taking SLM Corporation (NYSE: SLM).

OTHER PAPERS:

• The Economic Times reported that three bidders for Ford Motor Company's (NYSE: F) Jaguar and Land Rover units, Tata Motors, M&M and One Equity, submitted their final "competitive" bids Wednesday. The bids are rumored to be in the range of $1.5B-$2B, but may undergo revisions at some point.

With concerns that the Sallie Mae (NYSE: SLM) transaction may not close hitting the headlines as Congress returns to session ahead of next year's presidential election, could an opportunistic candidate turn national sentiment against a small, yet powerful, private equity group?

Sallie Mae was incarnated to provide low-cost loans to U.S. students so they could afford a college education, mostly targeting those groups who could least afford it. While this mandate has lost its focus as Sallie Mae loans are no longer cheap, it does leave the opportunity for a smart politician to seize the moment: Why should the profits of government-backed debt for students go to JC Flowers, so they make billions in profits?

The same could be said about the recently completed buyout of HCA, the large hospital chain. While it is a Class A operation, it generates a substantial portion of its revenue from Medicare and Medicaid. Once again, why should the U.S. taxpayer, who finances both Medicare and Medicaid, be paying money to HCA so they can pay down the $30-plus billion in debt so a few shareholders can walk away with billions?

It is interesting how one deal, Sallie Mae, could potentially raise so many red flags. As with most market excesses, one deal always become the poster-child deal symbolizing an era's end. Look for it to be Sallie Mae this time around. HD Supply renegotiating the terms for its deal could prove to be pure chump change.

The shareholders of student-loan provider SLM Corporation (NYSE: SLM), better known as Sallie Mae, have agreed to a $25.3B buyout by a group led by J.C. Flowers & Co. -- but that does not mean the deal is done. Now the buyer must decide if it still wants Sallie Mae, and if so, are they are still willing to pay a price that is now 28% higher than SLM's closing price yesterday.

But there's some uncertainty about Sallie Mae's business model due to the government's possibly cutting subsidies more than SLM had anticipated. That would negatively affect the company's profit and possibly cause the buyers to withdraw or seek to renegotiate terms. This has not gone unnoticed by SLM shareholders. "Sallie Mae seems to be trying to move it to fruition before the legislation goes through," says Richard Hofmann, an analyst with CreditSights.

SLM Corp. said it doesn't expect the proposed legislation to kill the transaction, but a spokesman for the buyers said that there was a "possibility that the conditions to closing may not be met." Whether the buyers are truly skeptical of the transaction closing, or are using this as leverage for a better price, is unclear.

Says Hofmann: "Our question has been whether Flowers wants to abandon the deal, or do they want better terms? To say they really think it is a bad deal and want to walk away is far-fetched."

Another possibility is that the buyers, who include Flowers, JPMorgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC), have reconsidered this large a purchase in light of the current market conditions. If so, they won't be alone.

MAJOR PAPERS:

• The Wall Street Journal (subscription required) reported that the UAW and representatives of Kirk Kerkorian, which made a $4.5B proposal for DaimlerChrysler AGs (NYSE: DCX) Chrysler unit, met to discuss the potential of an employee stock ownership plan and other alternatives to a takeover of the struggling automaker.
• A $25B deal to take SLM Corporation (NYSE: SLM), known as Sallie Mae, private will most likely remain under the scrutiny of a federal regulator, reported the Wall Street Journal.

OTHER PAPERS:

• The Washington Post reported that the FDA knew years in advance about contamination problems at a Georgia peanut butter plant and on California spinach farms that led to disease outbreaks, documents and interviews show.
• According to an examination by the San Jose Mercury News, a criminal case against Apple Inc (NASDAQ: AAPL) CEO Steve Jobs in the stock-options backdating investigation looks unlikely.
• According to Cinco Dias, Gottschalks Inc (NYSE: GOT) has hired UBS AG (NYSE: UBS) to explore options of a possible sale or a merger.

WEBSITES:

• Digitimes.com reported that Koninklijke Philips Electronics (NYSE: PHG) has decided to withdraw from the Taiwan handset market.