Sallie Mae shares jump on Blackstone link(2)

US-listed loans business Sallie Mae saw its shares jump today following reports that it may be a $20 billion bid target for The Blackstone Group. However, its portfolio structure and ongoing legal issues may yet scupper any bid.

Shares in Sallie Mae, a US student loan provider, rose by more than 13 percent today, following reports that The Blackstone Group is plotting a $20 billion (€15 billion) take-private bid.

The heavy trading followed a report in today’s New York Times newspaper, saying that Blackstone has put together a consortium of unnamed firms and is in late stage talks about a possible bid.

Speculation about Sallie Mae has mounted following a 20 percent fall in its share price during the last six months, suggesting that it might be available at a bargain price.

However, the deal would not be without problems. Financial services companies are difficult propositions for private equity firms, as they tend to already have large amounts of debt on their balance sheets.

Sallie Mae’s large portfolio of state-subsidised loans, which make up a large proportion of the company’s $142 billion portfolio may also prove to be a difficulty.

There are also legal clouds hanging over the sector. US loans companies have recently been the subject of legal investigations into their relationships with university officials. Only this week Sallie Mae reached a settlement with the New York attorney general’s office, in which it agreed to pay $2 million and change its business practices.

However, attorney-general Andrew Cuomo described the loan provider’s behaviour as “deceptive and unlawful”, and further investigations may follow.

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 also broadened its portfolio to include debt collection, and bought university plan manager UPromise in June.

Sallie Mae was set up in 1972 by the US Congress and privatised in the 1990s. It has been listed on the New York Stock Exchange since 2004.

At 12.33 pm ET today, Sallie Mae’s shares were trading at $46.25, up $5.52.