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Private Investors to Buy Sallie Mae for $25 Billion

But some student advocates said it was unclear that the deal would have any effect on students. "I think this is more about changes in corporate America than it is about changes in student loans," said Robert Shireman, president of the Institute for College Access and Success and executive director of the Project on Student Debt.

And Sallie Mae disputed the notion that the sale would cloak its operations in secrecy. "Sallie Mae will continue to have publicly traded debt securities and as a result will continue comprehensive financial reporting about its business, financial condition and results of operations," spokesman Joyce said in an e-mail.

After the buyout, which remains subject to shareholder and regulatory approval, Sallie Mae's management team would stay on the job, and the company would remain based in Reston, Sallie Mae said in a news release. No layoffs are planned, Joyce said. The company employs 11,456 people, including 763 in the Washington area.

At a price of $60 per share, the buyout would boost the value of Sallie Mae's stock by almost 50 percent compared with the price last week before the possibility of such a deal was first reported.

Chief executive Thomas J. Fitzpatrick's stock options would be worth $123.1 million; as of last week, he could have cashed in options worth $39.4 million, based on data from the company's most recent compensation disclosure. Fitzpatrick also owned more than 2 million shares that would be worth another $122.2 million.

As a group, Sallie Mae's officers and directors held more than 5 million shares as of Feb. 28 that would be worth more than $300 million at the buyout price.

"This transaction . . . recognizes the value in the company for shareholders," Sallie's Joyce said. "The marketplace, you could say, [had] not rewarded our shareholders for the earnings power of the company."

Sallie Mae's shares closed at $55.05 yesterday, up 17.7 percent from Friday's close, which already reflected news of a potential deal.

The sale of the company, which had been in the works for several weeks, was signed Sunday night after Sallie Mae's board met over the weekend, Joyce said.

By pooling their resources -- the student loan marketing dominance of Sallie Mae and the banking power and reach of Bank of America and J.P. Morgan Chase -- the three firms could position themselves to better withstand the threats from Congress, analysts said. The two other buyers are New York investment firms: J.C. Flowers & Co. and Friedman Fleischer & Lowe.

The change to private ownership reflects Sallie Mae's desire to shift from restrictive federal loans into the booming private loan business, where higher interest rates and fees can double the cost to borrowers, analysts said. The company also has been expanding into debt collection and the marketing of college savings plans.

"The fact that we have investors now who can bring significant resources to the table . . . will allow us to continue to diversify the business away from being wholly reliant on guaranteed student loans," Joyce said.

The cuts the government is considering in student loan subsidies "will result in less lenders, higher prices and less choice for students," Joyce said.

The debt Sallie Mae would take on as a result of the deal was raising eyebrows. Almost two-thirds of the $25 billion purchase price would be borrowed. The three major credit ratings agencies put Sallie Mae on watch yesterday for a possible downgrade in its investment ratings. A downgrade, which acts as an alert to the financial markets, could make it more difficult for Sallie Mae to get low-interest funds that back its student loans.

Staff writer David Cho, graphics editor Karen Yourish and staff writer Tomoeh Murakami Tse in New York contributed to this report.


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