SLM Shareholders Scheduled to Vote on Buyout

Shareholders of Reston-based Sallie Mae are scheduled to vote Wednesday on a $25 billion offer to take the student lender private. Under the proposed transaction, the buyers -- led by private-equity firm J.C. Flowers -- have proposed paying $60 for each outstanding share of Sallie Mae stock, a substantial premium over the pre-deal share price of $40.75.

The deal, however, has raised the ire of labor unions and student groups, who question whether the transaction is in the best interest of student who depend on loans to finance their education. In particular, they focus on the windfalls that several top executives, including Sallie Mae chairman Albert L. Lord, stand to reap once the sale is completed. As currently priced, Lord's stock and option holdings could be worth as much as $224.9 million.

Here's a sample of what the Service Employees International Union -- which has challenged other private equity deals -- has to say about the Sallie Mae buyout, which is widely expected to win shareholder approval:

"There is something obscene about Albert Lord taking $225 million dollars out of the Sallie Mae--and away from students and families struggling to afford college--at a time when the industry itself is mired in scandal and crisis.

Congress rightfully has questioned the industry and wondered that if there is so much extra cash to pay CEOs, then they shouldn't need such a big subsidy for student loans. Students, SEIU, and others plan to attend the shareholders meeting tomorrow, and hope to ask the same question of Sallie Mae executives. Today, they are hoping to meet with execs in advance of the meeting and urge them to examine how the buyout can be structured to safeguard the interest of students. Among the proposed remedies: no longer charging minority students higher interest rates based on their college choice or ZIP code, pledging to keep student loan rates reasonable, providing additional money for debt forgiveness, providing clear and transparent information to student lenders, and foregoing aggressive debt collection practices.

On top of the nearly $370 million in payouts that the top Sallie Mae officers are expected to make on the deal, banks, lawyers, and financial advisers to this deal will make $169 million in fees.

For some context, note that the fees this deal will cost alone could pay for:
• Up to 405,000 Pell Grants;
• Up to 46,285 Stafford Loans;
• 216,000 first-year or 124,615 second-year Academic Competitiveness Grants;
• 40,500 SMART Grants;
• Between 40,500 to 1,620,000 Federal Supplemental Educational Opportunity Grants; or
• Federal Teacher Loan Forgiveness grants for 32,400 elementary and secondary school teachers.

Meanwhile, Sallie Mae gives back just 1 percent of its earnings to students through the company's charitable fund."

By Mike Shepard  |  August 14, 2007; 7:18 PM ET
Previous: Local Venture Capital Deals From the Last Quarter | Next: Early Briefing 08.15.07


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