Sallie Mae shareholders back buyout

The shareholders of Sallie Mae, a US student loan company that accepted a buyout bid from a consortium led by JC Flowers in April, have voted in favour of the $25 billion deal – despite concerns that government cuts could cause the buyers to drop their offer.

Shareholders of US student loan company Sallie Mae backed a $25 billion (€19 billion) buyout deal yesterday, despite the bidding consortium’s recent threats to withdraw if the government carries out its threats to withdraw subsidies.

Sallie Mae said its shareholders voted in favour of the $60 per share bid, which is 28 percent higher than the company’s closing price yesterday of $46.75.

A consortium led by JC Flowers, the private equity firm run by ex-Goldman Sachs banker Christopher Flowers, agreed to buy Sallie Mae for $25.3 billion in April. The group also includes US buyout firm Friedman Fleischer & Lowe, Bank of America and JP Morgan Chase.

However, last month the consortium told Sallie Mae that it could drop or even withdraw its bid if a legislative proposal currently before the US House of Representatives and Senate is passed. The bill could slash the subsidies currently available to Sallie Mae by up to $19 billion, although the White House has threatened to use its veto to block it.

In a further blow to the student loan provider, news of the pending legislation led ratings agency Moody’s to downgrade its rating. This will make it more expensive for the company to raise fresh debt.

Nonetheless, Sallie Mae has continued to deny that the proposed legislation would amount to “a failure of the conditions to the closing of the merger to be satisfied,” as suggested by the consortium. This would also dictate whether the bidding group would be liable to pay the $900 million break fee if the deal falls through.

Under the terms of the original deal, the buyout firms planned to contribute $4.4 billion of equity in return for a 50.2 percent stake, while the two banks would take a 24.9 percent stake for $2.2 billion. This represents a significant step up in deal size for Flowers, whose entire fund has just $3.5 billion of commitments, and whose previous biggest deal had been the $5.5bn acquisition of Shinsei Bank in Japan, alongside US firm Ripplewood Holdings.

Separately, JC Flowers has sold its stake in Dutch bank NIBC, which has been bought by acquisitive Icelandic bank Kaupthing in a surprise €3 billion ($4.1 billion) deal. NIBC has been hit hard by the recent troubles in the US subprime mortgage market.