AI
Sallie Shares Plunge After CEO Talks
By ALAN ZIBEL 12.19.07, 1:59 PM ET
SLM 23.52 - 5.35
WASHINGTON -
Shares of Sallie Mae plunged to a five-year low Wednesday after the student lender's CEO said a dividend cut may be needed to bolster finances crimped by rising loan defaults and borrowing costs.
In the wake of a failed $25 billion buyout and a reduced profit forecast for 2008, Sallie Chairman and CEO Albert L. Lord tried to calm investors during a conference call. But analysts expressed dissatisfaction with Lord's answers, or lack of them, to their questions.
A group of investors led by private-equity firm J.C. Flowers & Co. reneged on its offer to buy Sallie - and brushed off Sallie's attempt to revive the transaction at a lower price - in part because of a new law that reduces federal subsidies on student loans.
Last week, Sallie, formally known as SLM Corp., slashed its profit forecast by more than 13 percent, blaming the revised subsidy law and the need to hold onto more cash to offset bad student loans.
Shares of Reston, Va.-based Sallie fell $5.63, or 19 percent, to $23.24, far below the $60-per-share offer made in April by the Flowers group.
Despite the company's financial weakness and falling stock price, Lord said Wednesday that the company would consider using shares to buy out smaller players in the student lending industry.
"This is a very challenging time," he said. "The goal here is to get out of deal mode, and into the growth mode."
Lord said the company plans to "look at the dividend in the second half of the year," as it seeks to boost its financial cushion.
Analysts voiced frustration with what they considered to be a lack of details from Lord, especially about the company's ability to package student loans into investments. The market for all kinds of risky debt has plummeted as defaults on home loans, credit-card debt, auto loans and student loans have risen.
"We're trying to figure out what your stock is going to be worth and you've got to give us some guidance," one analyst said during the conference call. "You've got to give some numbers."
Friedman, Billings, Ramsey & Co. analyst Matt Snowling told clients a research note after the call that "Rather than providing the reassurance and details investors were looking for...(Sallie Mae's) management created more uncertainty."
Snowling, who downgraded the company's shares to "market perform" also lowered his 12-month price target for the stock by $12 per share to $26 per share.
Lord acknowledged investors' displeasure at the start of the call.
"I'm quite aware that on the back end of a failed transaction that there are a lot of unhappy people," said Lord, who gained control of the company in a 1995 proxy contest. "(It's) ironic, because it was originally unhappy shareholders who originally put me in this seat in the first place."
Lord, who assumed the chief executive's seat on Friday and said he plans to stay in the position for at least two years, called his sale of more than 1.2 million shares of company stock to meet margin calls "embarrassing and troublesome to me personally" but not a reflection of diminished confidence in the company's long-term future.
He also pledged to improve the company's credit ratings, which were lowered earlier this year on concerns that buyout would lead the company would take on more debt. Standard & Poor's rates the company's debt 'BBB+,' the third-lowest investment-grade rating.
The failed buyout has landed in court, where Sallie is arguing that the investor group should have to pay a $900 million breakup fee. A trial could start late next year in Delaware Chancery Court.
The flagging financial outlook for the company, which lost $344 million in the third quarter, could bolster the investor group's legal argument - namely, that it shouldn't have to pay a fee for abandoning the deal because of significant changes in economic and regulatory conditions affecting Sallie.
A landmark student-loan law that took effect Oct. 1 cut billions of dollars in federal subsidies for student lenders like Sallie. And defaults are mounting on student loans, while credit-market tremors similar to those linked to the mortgage crisis have begun to show up in the $85 billion student-loan market.
Lord promised more details at an investor meeting in New York in mid-January. However, after numerous aggressive questions, Lord said analysts will "be going through a metal detector" before that meeting.
A company spokesman said that remark was intended as a joke.
Steven Davidoff, a law professor at Wayne State University who has followed the Sallie takeover battle closely, said "it's a bit odd for Lord to go on the stand and not have the information that he knows people are going to ask. He might have been better off just staying home."
http://www.forbes.com/feeds/ap/2007/12/19/ap4458496.html
Sallie, formally known as SLM Corp.
By ALAN ZIBEL 12.19.07, 1:59 PM ET
SLM 23.52 - 5.35
WASHINGTON -
Shares of Sallie Mae plunged to a five-year low Wednesday after the student lender's CEO said a dividend cut may be needed to bolster finances crimped by rising loan defaults and borrowing costs.
In the wake of a failed $25 billion buyout and a reduced profit forecast for 2008, Sallie Chairman and CEO Albert L. Lord tried to calm investors during a conference call. But analysts expressed dissatisfaction with Lord's answers, or lack of them, to their questions.
A group of investors led by private-equity firm J.C. Flowers & Co. reneged on its offer to buy Sallie - and brushed off Sallie's attempt to revive the transaction at a lower price - in part because of a new law that reduces federal subsidies on student loans.
Last week, Sallie, formally known as SLM Corp., slashed its profit forecast by more than 13 percent, blaming the revised subsidy law and the need to hold onto more cash to offset bad student loans.
Shares of Reston, Va.-based Sallie fell $5.63, or 19 percent, to $23.24, far below the $60-per-share offer made in April by the Flowers group.
Despite the company's financial weakness and falling stock price, Lord said Wednesday that the company would consider using shares to buy out smaller players in the student lending industry.
"This is a very challenging time," he said. "The goal here is to get out of deal mode, and into the growth mode."
Lord said the company plans to "look at the dividend in the second half of the year," as it seeks to boost its financial cushion.
Analysts voiced frustration with what they considered to be a lack of details from Lord, especially about the company's ability to package student loans into investments. The market for all kinds of risky debt has plummeted as defaults on home loans, credit-card debt, auto loans and student loans have risen.
"We're trying to figure out what your stock is going to be worth and you've got to give us some guidance," one analyst said during the conference call. "You've got to give some numbers."
Friedman, Billings, Ramsey & Co. analyst Matt Snowling told clients a research note after the call that "Rather than providing the reassurance and details investors were looking for...(Sallie Mae's) management created more uncertainty."
Snowling, who downgraded the company's shares to "market perform" also lowered his 12-month price target for the stock by $12 per share to $26 per share.
Lord acknowledged investors' displeasure at the start of the call.
"I'm quite aware that on the back end of a failed transaction that there are a lot of unhappy people," said Lord, who gained control of the company in a 1995 proxy contest. "(It's) ironic, because it was originally unhappy shareholders who originally put me in this seat in the first place."
Lord, who assumed the chief executive's seat on Friday and said he plans to stay in the position for at least two years, called his sale of more than 1.2 million shares of company stock to meet margin calls "embarrassing and troublesome to me personally" but not a reflection of diminished confidence in the company's long-term future.
He also pledged to improve the company's credit ratings, which were lowered earlier this year on concerns that buyout would lead the company would take on more debt. Standard & Poor's rates the company's debt 'BBB+,' the third-lowest investment-grade rating.
The failed buyout has landed in court, where Sallie is arguing that the investor group should have to pay a $900 million breakup fee. A trial could start late next year in Delaware Chancery Court.
The flagging financial outlook for the company, which lost $344 million in the third quarter, could bolster the investor group's legal argument - namely, that it shouldn't have to pay a fee for abandoning the deal because of significant changes in economic and regulatory conditions affecting Sallie.
A landmark student-loan law that took effect Oct. 1 cut billions of dollars in federal subsidies for student lenders like Sallie. And defaults are mounting on student loans, while credit-market tremors similar to those linked to the mortgage crisis have begun to show up in the $85 billion student-loan market.
Lord promised more details at an investor meeting in New York in mid-January. However, after numerous aggressive questions, Lord said analysts will "be going through a metal detector" before that meeting.
A company spokesman said that remark was intended as a joke.
Steven Davidoff, a law professor at Wayne State University who has followed the Sallie takeover battle closely, said "it's a bit odd for Lord to go on the stand and not have the information that he knows people are going to ask. He might have been better off just staying home."
http://www.forbes.com/feeds/ap/2007/12/19/ap4458496.html
Sallie, formally known as SLM Corp.
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