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Aiming to Free Sallie Mae From Red Tape
There was "no driver" for such a highly leveraged transaction, Lord said, because Sallie Mae's stock price was then hovering in the $50s, high enough to prevent a sale that included a hefty premium for Sallie Mae shareholders. So he backed off.
He restarted his exploration a year later, when the stock price was depressed. In November, Democrats, who have long been the strongest critics of Sallie Mae's student loan business, swept into control of Congress, and that was not good news for Sallie Mae. "When you look at the politics," he said. "I didn't see the light at the end of the tunnel."
Lord talked about the situation with Spencer Fleischer, a private-equity investor from San Francisco, and like Lord, a director of BearingPoint, a management and technology consulting company in McLean. In November, after a BearingPoint board meeting in Manhattan, Fleischer introduced Lord to J. Christopher Flowers of J.C. Flowers & Co., a leading private-equity firm.
Lord was immediately impressed. "I was just blown away," Lord said. "He's just smart."
Flowers said he was aware that Lord had considered a similar transaction a year earlier and agreed to study the possibility. A month later, Lord and Fleischer returned to Flowers's midtown office and were told by him that the buyout "could be done," Lord recalled.
Lord then began to talk to Sallie Mae's board and top executives. At the firm's January board meeting, chief executive Thomas J. Fitzpatrick, who Lord said had also met with Flowers, promised to return in March with options for the future of the company. Lord was put in charge of a four-person board committee to ride herd on the exploration.
By the March 15 board meeting, Lord said the board had engaged UBS to help advise the company about its valuation and options, as well as the law firm Davis Polk & Wardwell, among other advisers.
The transaction came together quickly. Lord scoured New York for private-equity firms. In the end, two were chosen as bidders: Flowers and, according to executives familiar with the deal, Blackstone Group, which had shown interest in the company at the end of 2005.
Lord recalled that Flowers's group was not always in the lead, but it produced the most inviting package in the end. "He earned it," Lord said.
On Sunday, at the Davis Polk offices in Manhattan during a record-breaking downpour, the board agreed to the $25 billion offer.
"I wouldn't have done this deal with just anybody; these are very, very substantial players," Lord said. "We needed a long-term answer and to help shareholders get back what they lost."