Sallie Mae Stock Rises On News of Possible Sale

Shares of Sallie Mae, the nation's largest student loan company, rose 14.8 percent yesterday on reports that it was in talks to be bought by private investors.

The Reston company has been talking with potential buyers, including private-equity firms, according to a person with knowledge of the discussions who spoke on condition of anonymity because the negotiations are ongoing.

Sallie Mae has retained the investment bank UBS to explore options, the source said.

A buyout could cost more than $20 billion, the New York Times reported yesterday, citing sources briefed on the discussions. One potential buyer is Blackstone Group, the paper reported.

John Ford, a spokesman for Blackstone, one of the country's biggest buyout firms, declined to comment yesterday on the report.

The talks come as Sallie Mae faces proposed cuts in federal subsidies and scrutiny of student loan marketing practices. Those developments have helped depress Sallie Mae's stock price in recent months, making it a less expensive takeover target.

Sallie Mae spokeswoman Martha Holler declined to comment. "It's our long-standing policy not to comment on market rumors or speculation," she said.

Taking Sallie Mae private could insulate it from the forces that have been hurting its stock price and liberate it from the extensive disclosure requirements that come with publicly traded shares.

Sallie Mae's top executives have the potential to benefit from a sale of the company. For example, they could receive substantial payouts if they lose their jobs as the result of a change of control at the company. As of Dec. 31, such payments to five top executives would have totaled $30.7 million, including $14.4 million for chief executive Thomas J. Fitzpatrick, according to a regulatory filing Sallie Mae made this week.

SLM Corp., as Sallie Mae is officially known, was once a government-sponsored enterprise like mortgage funding giants Fannie Mae and Freddie Mac, but its federal charter was dissolved in 2004. Its dominant position in the industry today is largely a legacy of its former favored status.

Days ago, the company agreed to a $2 million settlement with the New York state attorney general's office to limit its exposure in a widening investigation of the student loan industry.

Under the settlement, Sallie Mae agreed that it would no longer pay travel and entertainment expenses for university officials or send its employees to work for free in campus financial aid offices, practices that critics say could skew the lending system in its favor.

The Bush administration has proposed cutting subsidies to student loan companies, which could take a bite out of Sallie Mae's earnings. Democrats have argued that student loan programs have needlessly enriched private lenders, and they are trying to overhaul the system.

Much of Sallie Mae's business involves loans that are subsidized and guaranteed by the government, minimizing the potential losses if borrowers default.

As of Dec. 31, the company owned $142.1 billion in loans to almost 10 million borrowers. Of those loans, 84 percent were federally insured. The steady flow of cash that comes from student loans is a key element of the company's appeal to private equity buyers.

Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, expressed concern yesterday about a potential buyout.

"The American people must be able to hold lenders and schools accountable to ensure that federal student aid dollars are being properly used to help students and families pay for college," Miller said in a statement.

The possibility of Sallie Mae becoming private "raises significant concerns that even less information will be disclosed to the public," he said.

The company has been a generator of wealth for its top executives, who have ranked among the most highly compensated in annual Washington Post surveys of the area's public companies.

Sallie Mae Chairman Albert L. Lord made news a year ago with his plans to build a golf course for his private use on 244 acres in Anne Arundel County.

In early February, Lord sold $18.3 million worth of company stock just days before the Bush administration proposed a multibillion-dollar cut in subsidies to the lending industry, causing Sallie Mae shares to plunge. A Sallie Mae spokesman said Lord had no advance knowledge of the Bush budget plan when he sold the shares. The Securities and Exchange Commission has begun examining the transaction, as have members of Congress.

Sallie Mae shares closed at $46.76 yesterday, up $6.01 from a 52-week low of $40.75 on Thursday but still well below the 52-week high of $54.82 last May.

Tse reported from New York. Staff writer David Cho contributed to this report.