Sallie Mae still in trouble?

The group of investors that threatened to pull out of its deal to buy Sallie Mae for roughly $25 billion on Tuesday reduced its cash offer for the nation’s largest student lender by 17 percent.\nA Sallie Mae spokesman said the company’s board will review the revised offer of about $21 billion “and respond quickly and appropriately based on the best interests of our shareholders.” The company has insisted in recent weeks that the deal can and should be consummated this month as planned.\nThe investor group led by private equity firm J.C. Flowers & Co. said last week that landmark student-loan legislation signed into law by President Bush – as well as the uncertain economic climate – made the deal unacceptable at the original $60-a-share price negotiated in April.\nThe group sent the revised proposal to the board of the company, formally called SLM Corp., saying that the new $50-a-share cash offer “appropriately and fairly reflects the new economic and legislative environment that faces the company.”\nThe new offer includes additional potential payment of more than $7 a share if Sallie Mae performs on track with its own projections, or up to $10 a share if the company exceeds them.\nShares climbed $1.31, or 2.6 percent, to $51.21 in afternoon trading.\nThe new student loan legislation will cut about $20 billion in federal subsidies to companies like Sallie Mae that make student loans while halving the interest rate on government-backed student loans. According to Sallie Mae, the new student loan law will reduce its “core earnings” net income between 1.8 percent and 2.1 percent each year over the next five years.\nIn a letter to Sallie Mae’s board, the head of the Flowers firm, J. Christopher Flowers, said the revised proposal represents “a significant premium to what the company’s unaffected share price would likely be based on historical trading ranges and current market conditions.”\nBuyout firms like Flowers – which acquire public companies and take them private, restructure them and then sell them a few years later at a profit – had been riding a wave of easy credit but recently have found it harder to persuade their bankers to finance takeovers.