Blackstone mulls Sallie Mae bid(3)

Alternative asset manager The Blackstone Group is considering a bid for US student loan provider Sallie Mae, once its legal battle with a JC Flowers-led consortium ends, according to US magazine Fortune.

Sallie Mae is reportedly suing the consortium, which also includes US banks Bank of America and JP Morgan Chase, for attempting to walk away from its $60 per share (€42 per share) bid for the company. The consortium alleged a material adverse change had occurred at Sallie Mae, when US President George Bush signed the College Cost Reduction and Access Act slashing the subsidies available to Sallie Mae by up to $19 billion.

If the buyout consortium cannot prove that Sallie Mae’s financial condition meets the requirements of a material adverse change clause, the firms could have to pay a $900 million breakup fee.

The JC Flowers consortium attempted to stage a compromise $50 per share bid for the student loan provider but it was rebuffed.

Sallie Mae will be barred from talking to other bidders until the dispute is resolved, if it wants to receive its break fee.

However, the chairman of Sallie Mae, Albert Lord, sparked speculation other parties were interested in the company once the dispute clears. When asked in a conference call, whether there was further interest, Lord reportedly said: “We get calls. We can’t talk to other buyers, but we can listen.” The Blackstone Group was named by Fortune as one of the interested parties in the company.

US buyout firm Kohlberg Kravis Roberts and the bank Goldman Sachs have also dropped their $8 billion buyout of stereo maker Harman International Industries, claiming a material adverse change in the company’s financial condition.

Recently, Lone Star, the US private equity firm, invoked the clause in its attempt to walk away from a $400 million agreement to buy subprime lender Accredited Home Mortgage. The mortgage company in turn sued the buyout firm to force the sale, which prompted Lone Star to offer to proceed with the buyout at a reduced price. The two firms eventually signed a $296 million agreement and dropped pending lawsuits.