A Dealmaker's Rare Misdeal

Washington Was Wild Card In Flowers's Bid For Sallie Mae

J. Christopher Flowers, whose bid to buy Sallie Mae has deteriorated into a bitter legal battle, has a résumé that ranks him with Wall Street's savviest dealmakers: coolly calculating architect of one of private equity's most profitable buyouts. Goldman Sachs partner at 30. Owner of a $53 million home on Manhattan's Upper East Side. Manager of New Jersey Gov. Jon S. Corzine's personal fortune. Net worth of $2 billion.

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But he has been largely unknown outside business circles during the eight years he's spent quietly building a financial services empire. Now Flowers, 49, has been drawn into the glare of publicity because of an apparent misstep: He bid more for Sallie Mae than he now says it's worth.

The dust-up with the Reston student lender, formally known as SLM Corp., has interrupted the charmed run of this "hard-core capitalist," as a college friend describes Flowers. And it has forced the bespectacled Flowers, who speaks Greek and Latin and prefers chess and the piano to golf and cigars, into a political arena more familiar to his opponent -- SLM Chairman Albert L. Lord, a Washington insider and veteran business infighter.

Since Flowers pulled his $60-a-share offer off the table last month, dropping it to $50, Lord has played hardball. He rebuffed the revised bid and has gone to court to force Flowers and his partners, including Bank of America and J.P. Morgan, to pay a $900 million breakup fee. Lord went public yesterday, defying Flowers in an interview and an investors' conference call.

Flowers declined to comment on the Sallie Mae battle but said in an interview this week that his deals haven't always gone the way he expected.

"One of the great things about business is that when you really think you have it all figured out, something goes wrong, just like in a chess match," he said. "It's a humbling experience."

Despite Flowers's reputation for being a skillful assessor of business value, he underestimated Sallie Mae's political problems, those close to him say. Earlier this summer, after Flowers had agreed to buy Sallie but before the deal closed, Congress passed harsher-than-expected legislation that cut the subsidies the federal government had granted Sallie Mae, which is likely to hurt the company's profits.

"He didn't read the tea leaves on Capitol Hill," said Dan Primack, editor of Thomson Financial's private equity Web site peHUB.com. "There is a good case that he couldn't have known what this legislation would have been. That said, you always do have to bake the level of risk for a company like Sallie Mae, and one of the huge risks is that the government could cut your subsidy. His unbroken streak ends if he is forced to pay the $900 million."

Flowers has said that the legislation triggered a "material adverse effect" clause that gives the Sallie Mae buyers the ability to step back from the deal.

Meanwhile, dealmaking doesn't stop: Even as Flowers is fighting Sallie Mae in Delaware Chancery Court, he's making a $30.6 billion play for Northern Rock, a British bank that nearly went under last month.

The son of a Harvard Business School administrator, Flowers went to Harvard to study applied mathematics as an undergraduate. He skipped business school, diving right in with Goldman.

There, he quickly made a name for himself, not only for succeeding without the requisite master's degree, but also for the speed with which he became the head of the division that buys financial firms. He also became a protege and close friend of Corzine, who was chairman of the company before being purged in 1999.