Sallie Mae merger going bust???

[Texas Proud]

Just saw my OSMs go up a lot.... wondered why.... well... SLM down 14% at this time...

SLM Corporation Provides Update On Transaction
1:48p ET July 11, 2007 (PR NewsWire)
SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, today announced that, in connection with the April 15, 2007 agreement providing for the acquisition of Sallie Mae, the acquiring entity, owned by affiliates of J.C. Flowers & Co., Bank of America and JPMorgan Chase, has informed Sallie Mae that it believes that current legislative proposals pending before the U.S. House of Representatives and U.S. Senate "could result in a failure of the conditions to the closing of the merger to be satisfied." Sallie Mae strongly disagrees with this assertion, intends to proceed towards the closing of the merger transaction as rapidly as possible and will take all steps to protect shareholders' interests.

[haha]

Originally Posted by Texas Proud

Just saw my OSMs go up a lot.... wondered why.... well... SLM down 14% at this time...

SLM Corporation Provides Update On Transaction
1:48p ET July 11, 2007 (PR NewsWire)
SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, today announced that, in connection with the April 15, 2007 agreement providing for the acquisition of Sallie Mae, the acquiring entity, owned by affiliates of J.C. Flowers & Co., Bank of America and JPMorgan Chase, has informed Sallie Mae that it believes that current legislative proposals pending before the U.S. House of Representatives and U.S. Senate "could result in a failure of the conditions to the closing of the merger to be satisfied." Sallie Mae strongly disagrees with this assertion, intends to proceed towards the closing of the merger transaction as rapidly as possible and will take all steps to protect shareholders' interests.

Sounds like Mr. Flowers or his investors are getting cold feet. What a saga!

Ha

[Nords]

Originally Posted by Texas Proud

Sallie Mae strongly disagrees with this assertion, intends to proceed towards the closing of the merger transaction as rapidly as possible and will take all steps to protect shareholders' interests.

What the heck does that imply-- legal action? What type of enforcement options do they have?

I'm not sure what's changed in Sallie Mae's fundamentals. Either they get bought out by private equity and their share price rises. Or they don't get bought out, they eventually get paid off to stop complaining about it, and they continue on with their current government sponsorship-- and their share price rises.

Either way this looks like a blue-light special fire sale price, and people seem to be running away screaming. What am I missing here in the "seller's logic"? Or is that term oxymoronic?

[brewer12345]

There are three possible outcomes:

1) No Deal: stock price is headed for the 40s or lower, at least for a bit.
2) Deal as-planned: stock goes to $60 as deal is done
3) Deal-modified: deal gets done at a reduced price

If I had to guess, I would figure that #3 is the most likely outcome. But any of the three are plausible, and it is real hard to tell how likely each one is.

[kcowan]

I think it is positioning to negotiate a lower price.

[brewer12345]

Allow me a bit of Schadenfreude:

Haaaaaaahahahahahhahaa!!!!

You deserve it, you rat-bastard, butt-sucking, two-bit hustlers. I hope JC Flowers and the boys bitch slap you senseless!!!

[73ss454]

Hey Brew, can you tell us how you really feel. (heheh)

[clifp]

I took advantage of the temporary raise in price to sell some of my OSM bonds.

Who knew that bonds could be so exciting.

[cute fuzzy bunny]

Six weeks of excitement from them was about all I needed.

Seems the feds are going to cut student loan subsidies and also are looking at legislation to help graduates by not pressing them to pay more of their loans than they want to. I imagine that makes student lending a little less interesting, and also cuts into the profits a bit.

Between that and the investigations into SLM for kickbacks and conflicts of interest, it seems theres more to this little fiasco than credit ratings and interest rates...

I think that all things considered, if I wanted to make money on junk issuers with a lot less risk, I'd just buy vanguards high yield, have a much lower risk of principal loss, and a higher yield for the 95% of the time when inflation isnt high. Or grab the next penfed 7 year 6.xx% cd and call it even.

[haha]

Originally Posted by cute fuzzy bunny

I think that all things considered, if I wanted to make money on junk issuers with a lot less risk, I'd just buy vanguards high yield, have a much lower risk of principal loss, and a higher yield for the 95% of the time when inflation isnt (wasn't)high. Or grab the next penfed 7 year 6.xx% cd and call it(perhaps) even.

(Stuff in parentheses Ha's)

Here's an interesting take on the Sallie Deal-

Minyanville

At this point this is only interesting to me from a learning POV. Believing that the first cut is often the kindest, I was out of here very early on, as I posted here the same day.

Ha

[cute fuzzy bunny]

Hey Ha...(made me say "yee ha!" out loud")...good article...I liked the part below the SLM piece...

"The latest tainted product from China? Fake pork buns! Fake steamed buns made from up to 60% waste paper and cardboard have become the latest food to join a growing.

For sure its nice to have a little inflation insurance. Thing is, most people only fill out their portfolio 10-30% with these puppies. So only a small piece is "cpi protected". What good is that? On the flip side, people who hold primarily CPI adjusted paper are giving up a lot of returns in the hopes that inflation will be high for a long time sometime in their investing lives.

With the feds foot on the throttle, the key focus of a lot of people being on keeping inflation low, and the measurement stick being up for regular reinventing...I'm just not comfortable with that idea either.

But whatever helps ya sleep at night...

[SC]

Originally Posted by cute fuzzy bunny

For sure its nice to have a little inflation insurance. Thing is, most people only fill out their portfolio 10-30% with these puppies. So only a small piece is "cpi protected". What good is that?

I'm surprised to hear you say that, CFB. I've got about 10% in TIPS for the same reason I've got 10% in emerging markets, 10% in domestic small-caps, etc.: the familiar advice that says by diversifying into different asset classes which are not perfectly correlated with one another, one can reduce volatility and may actually increase your return.

Frankly, I don't care if it's indexed to CPI-U or the price of cheese - as long as it provides appropriate return for the risk and behaves differently than other asset classes, I expect to benefit from assigning an appropriately sized slice to it.

[cute fuzzy bunny]

You shouldnt be surprised, i'm not that worried about volatility and I think bonds suck in general. I just think TIPS suck slightly more. We've already established that over the long haul, you'll get about the same returns from nominal bonds of the same duration as you'll get from TIPS. Its an efficient market. So why trust half or more of your return to some magic formula that MIGHT go up some day, or might be cut by 20-30% by a bunch of D.C. economists with an agenda?

Emerging markets, small caps, foreign equities...can be counted on to have periods where they picks up 15-25% a year, from which you can rebalance to underpriced sectors. Similarly, it'll have 15-25% down years, which enables purchasing shares at a discount.

Whats your upside on TIPS? Every 20-25 years, providing some concoction of factors coincide that everyone on the planet is trying to avoid, you might see an extra 5-10% for a few months, maybe a year or two?

I wont disagree that they're fine for diversifying your bond holdings or as your entire bond holding. But having just a slice gives you no appreciable "inflation protection" and having too much of them creams your total long term returns.

Again, bear in mind that my investing philosophy is a solid core and some volatile high return 'explore' options to juice up your returns and offer rebalancing options. As myself and a few other posters have noted, over the long haul an early retiree better have some solid equity investments, a shitload of money, or plan to be able to pare their spending to the bone.

[FIRE'd@51]

TIPS at 2.75% are yielding more than the average real return of long Treasuries over the past 80 years - according to the Ibbotson data this number was 2.3%. So one could argue that TIPS at 2.75% are attractive in a historical sense.

Also, one needn't just hold TIPS until maturity. The recent rise in the 10-year Treasury yield has been pretty much matched by the rise in TIPS yield. This tells me that there has been no significant increase in expected inflation by the bond market. IOW, the rise in interest rates has been from a rise in real rates due to the strength of the global markets and global demand for money. Should this strength weaken, real rates will likely fall. TIPS have a larger duration with respect to real rates than regular Treasuries, so they will exhibit a larger price increase under such a scenario. Thus, if real rates fall, one can get a bigger capital gain with TIPS. If inflation expectations increase, TIPS will be unaffected, but regular Treasuries will decrease in price. The only scenario where regular Treasuries will outperform TIPS in the next few years (from a price point-of-view) will be if inflation expectations drop (which I think is unlikely) or real rates go higher (in which case I would buy more TIPS).

[haha]

Good analysis Fire'd at 51.

It is how i see it also.

Ha