Sallie Mae Insists on $25 billion Buyout

SLM Corp. is hanging tough after a report in the New York Times this morning that the big investors seeking to buy the student lender planned to reduce their $25 billion bid for the company.

SLM, better known as Sallie Mae (NYSE: SLM), said in a terse statement today that it expects the investors Bank of America and JPMorgan Chase, to “honor their commitments … [and] not breach the contract.” 

BofA, Chase and several private equity firms led by J.C. Flowers & Co. agreed to pay $60 a share, or about $25 billion, for Sallie Mae earlier this year. The consortium agreed to pay Sallie Mae a $900 million breakup fee if the deal fell through.

Sallie Mae doesn’t mention Flowers in its statement, instead focusing on the banks. “Our contract is with Bank of America and JPMorgan Chase, two of America’s largest and strongest banks,” according to the statement.

The New York Times cited anonymous sources in reporting that the investors met Tuesday to strategize on negotiating a lower price for Sallie Mae. The Times reported the investors may be willing to forget the deal and pay the $900 million fee.

Wall Street has assumed the deal would be renegotiated, trading Sallie Mae stock well below the offering price. Sallie Mae was trading at $48.55 midday today. 

The deal has been buffeted by the drying up of the credit markets this summer as the crisis in subprime mortgages sent foreclosure rates sky rocketing and lenders into bankruptcy. In addition, President Bush could soon sign a bill that would cut $20 billion in government subsidies over the next five years to banks that make student loans. Sallie Mae said the bill wouldn’t have a material impact on its net income.