By David S. Hilzenrath
Washington Post Staff Writer
Thursday, December 20, 2007
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.
"My bank sold me out on Friday," he said. "I will mention that it's embarrassing and troublesome to me personally. It is not a sign of my disillusionment with the company. In fact, the exact reverse is the case. It's a short-term cost in my view of my own belief in my company. I suppose you might say, one more victim of an unfinished deal."
Noting that there has been "a lot of finger-pointing about who was responsible" for the buyout's failure, Lord said that to blame him or Sallie Mae's directors, "you actually must believe that the other side wanted to do a deal and we did not. The exact reverse is the fact."
There was no talk yesterday of arranging another buyout. Instead, Lord said Sallie Mae had to "get out of deal mode and into the growth mode." Among his goals: strengthening Sallie Mae's balance sheet and improving its damaged credit rating.
The call got tense when William Kavaler, a managing director of the French bank Societe Generale, pressed Lord repeatedly for insights about the interest in securities backed by Sallie Mae loans.
"We're trying to figure out what your stock is going to be worth, and you've got to give us some guidance, you've got to give us some numbers," Kavaler said.
"You should give Steve a call," Lord said, in an apparent reference to the head of investor relations, Steven J. McGarry, who was also on the call.
"But you're the CEO. You're the guy who just took over the company," Kavaler said.
"Yeah, I'm the, that's exactly right. I'm the CEO. You should give Steve a call. Next question."
Lord said he would be prepared to take all questions in January, when he plans to address investors in New York.
"And I would suggest maybe you get there early, because I can assure you, you will be going through a metal detector," he said, in what seemed a facetious reference to the hostility he expects.
After only half the time allotted for the conference call, and after only four of the about 400 people listening to the call had asked questions, the operator asked for more. There was a pause.
"How good is this?" Lord said, in an apparent aside that could be heard on the call.
"Steve, let's go. No questions. Let's get the [expletive] out of here," he said.
Then, speaking to shareholders, Lord said, "Goodbye. Thank you."
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