Business Law Contract Dispute And Negotiation

889 words - 4 pages

Sallie Mae's High-Stakes StandoffContract dispute and re-negotiation - certainly no one's idea of fun and probably the last words a corporate CEO wants to hear in the midst of an acquisition deal. Sallie Mae, one of the nation's largest student loan lenders, agreed in April to sell to J.C. Flowers, J.P Morgan, and Bank of America for the sum of $25 billion. However soon following, speculation about looming student loan legislation impeding Sallie Mae profitability gave the Flowers-led group pause for concern about the agreed-upon price; citing the College Cost Reduction and Access Act signed into law on Thursday by President Bush, would adversely affect the bottom-line of the newly acquired company, the Flowers group stated that this was grounds for renegotiation of the deal. Sallie Mae threatened to go to court to have the deal enforced. Sallie Mae stipulates that even if the legislation did impact profitability, it would be a nominal percentage and does not constitute grounds for renegotiation since the assumed drop in earnings will be 6% or lower and therefore does not constitute a "material impact" on profitability.Wall Street analyst Sameer Gokhale, of Keefe, Bruynette and Woods, thinks the impact will be significantly less than 6%, speculating Salle Mae's 2008 earnings will fall a mere 1.5% (Eavis, 2007), hardly grounds for renegotiation and rumors abound that there may soon be a rival bid if the dispute continues. The Blackstone Group was courting Sallie Mae prior to the Flowers camp making its offer. Though no one responded to calls from either side, including Blackstone, Wall Street was ablaze with rumor that Sallie Mae had asked the buyers to name their new price. It is expected that if the new price is significantly lower, rival bids will surface and according to Peter Eavis, by publicly questioning deal terms, the buyers have made it easier for Salle Mae to court other prospective buyers. Even with the new legislation enacted, Sallie Mae is expected to continuing being profitable as education costs continue to rise and private student loan borrowing is expected to soar. Analysts are predicting that Sallie's profits will rise 35% in 2008 alone - hardly an unwise investment for J.C Flowers and Co. (Eavis).Although this dispute has not yet gone to court, if Sallie Mae does not receive an acceptable new offer nor any acceptable rival bids, the company may well choose to enter into arbitration to have the price-dispute settled outside of court before moving forward with full-on litigation. Though the article does not say, I imagine there is a dispute resolution clause included in the verbiage which includes arbitration; because the conflict involves the...

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