US buyout firms JC Flowers and Friedman Fleischer & Lowe have teamed up with JP Morgan Chase and Bank of America to buy Sallie Mae, a US student loan provider, for $25 billion (€18.5 billion).
The sale price of $60 per share, which values the company at $25 billion, represents a sizeable 50 percent premium on the share price prior to the recent speculation, and a 33 percent premium on the closing price last Friday. It is also higher than the company’s highest share price over the last five years of about $58, from early 2006.
The deal will include a massive equity cheque of almost $9 billion. JC Flowers and FFL are contributing about $4.4 billion, leaving them with a 50.2 percent stake, while the two banks will each invest just under $2.2 billion for a 24.9 percent stake. They will also provide the necessary debt financing.
The news follows an earlier report that The Blackstone Group was the favourite to land the deal, which sent Sallie Mae’s share price soaring last Friday.
Sallie Mae, which is officially called the SLM Corporation, had net income of $1.2 billion last year and manages nearly $89 billion in student loans. The company has courted controversy recently over its dealing with university officials. It recently agreed to pay a $2 million settlement to the Attorney-General’s office after he described Sallie Mae’s behaviour as “deceptive and unlawful”.
The deal, which was unanimously approved by the board, still needs to be approved by regulators and the remaining shareholders. The company expects to close the deal in late 2007, and has no plans to pay out a special dividend.