Sallie Shares Tumble After Lord's Tense Call With Investors

Sallie Mae chairman Albert L. Lord acknowledged that he was facing a potentially hostile bunch yesterday when he addressed shareholders for the first time since his effort to sell the student loan company collapsed.

But what began as an effort to soothe his constituents ended in a moment of profanity. By the end of the day, investors drove Sallie Mae's stock down 20.7 percent, to $22.89.

"Rather than providing the reassurance and details investors were looking for on today's conference call, management created more uncertainty," analysts at the Arlington investment firm Friedman, Billings, Ramsey said in a note to clients that downgraded the stock.

Before the conference call came to an unexpectedly quick conclusion, Lord said he had "very, very specific goals" for the company's future, but he provided few if any specifics as to how he would achieve them. He indicated that the company would consider issuing more stock to shore up its financial condition. He rejected blame for the buyout's demise, describing himself as "one more victim of an unfinished deal."

The aborted buyout would have given investors $60 per share, a premium of almost 50 percent over the stock's pre-deal price of $40.75. Since the deal was announced in the spring, the government cut subsidies to student lenders such as Sallie Mae, the company lost $344 million in the third quarter, and trouble in the credit markets has made it harder for Sallie Mae to finance its operations.

Last week, after the would-be buyers cut off negotiations, Sallie Mae reduced its earnings forecast for 2008.

The company no longer has the luxury of letting new owners solve its problems. In a move reminiscent of a line from the third "Godfather" movie -- "Just when I thought I was out, they pull me back in" -- Sallie Mae last week restored Lord to his former role as chief executive.

The purpose of yesterday's call, Lord told the investors at the outset, was "to reacquaint myself with you, and you with me and try to create some transparency by me as CEO.

"I'm quite aware that on the back end of a failed transaction that there are a lot of unhappy people on the other end of this call," he said.

Lord can relate. His remaining stock options, which entitled him to buy shares at prices ranging from $22.97 to $48.84, would have been worth $162.5 million if the deal had gone through at $60 per share, and $105.4 million if he had accepted a reduced offer of $50 per share. At the close of trading yesterday, they were worthless.

Last week, Lord's bank liquidated 96.6 percent of the Sallie Mae shares he owned outright. The nearly 1.3 million shares were held in a margin account, which allowed Lord to make other investments by borrowing against them -- and allowed the bank to seize them through a so-called margin call if such investments soured.

Lord shed no light on the nature of the investments that led to the liquidation.