Group to Buy Sallie Mae for $25 billion; JP Morgan and Bank of America Involved

An investor group led by J.C. Flowers & Co has signed a definitive agreement to purchase SLM Corporation, commonly known as Sallie Mae, for approximately $25 billion or $60.00 per share of common stock, the companies announced today.

When the transaction is complete, J.C. Flowers along with private-equity firm Friedman Fleischer & Lowe will invest $4.4 billion and own 50.2 percent, and Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) each will invest $2.2 billion and each will own 24.9 percent. Sallie Mae’s independent board members have unanimously approved the agreement and recommended that its shareholders approve the agreement.

“We are pleased to invest in Sallie Mae and help provide increased liquidity, stability and financial strength,” said J. Christopher Flowers, Managing Director at J.C. Flowers. “Both Bank of America and JPMorgan Chase have fully committed to support the company with short- and long-term financing.”

The new owners are committed to supporting Sallie Mae’s focus on transparency among lenders, schools and students and on corporate governance. Sallie Mae will be subject to oversight by Congress and the Department of Education, and will continue to be subject to all applicable federal and state laws, including the Higher Education Act.

Upon closing, Sallie Mae’s current management will continue to lead the company, ensuring that it will continue to adhere to the New York Attorney General’s Student Loan Code of Conduct, which Sallie Mae adopted April 11. Sallie Mae will continue to originate student loans under its internal brands and will remain headquartered in Reston, Va.

In 2006, Sallie Mae, the nation’s leading saving- and paying-for-college company, originated $23.4 billion of student loans.

“This is an exciting, new chapter in Sallie Mae’s history,” said Sallie Mae CEO Tim Fitzpatrick, who will continue in that role. “Over the years we have worked with Congress and other policymakers to offer innovative products to students, and to address the challenges of college affordability and rising student debt. We have helped meet this challenge by offering industry-leading student loan discounts, introducing innovative technology, and by investing in Upromise, which administers college savings plans.”

As a result of Sallie Mae acquisitions over the last eight years, nearly $2 billion has been generated for higher education philanthropy programs to increase access to higher education. Under the new owners, Sallie Mae expects to work with independent foundations to continue its investment in need-based scholarship grants and financial literacy to students. Sallie Mae has a strong history of funding foundations that support academic preparation, financial literacy, and college access, with particular emphasis on lower-income families, students from underrepresented groups and the institutions that serve them. These include first-generation Latino Americans, African Americans, Historically Black Colleges and Universities, and community colleges.

Chase and Bank of America will continue to operate their independent student lending businesses, providing students, families and schools the widest possible choices.

Over the next decade, demand for college loans by students and their families is expected to grow substantially with U.S. college costs escalating faster than family incomes. From 1989 to 2005, the cost of a college education has increased an average of 6 percent, double the overall inflation rate of 3 percent, according to the College Board.

The transaction will require the approval of Sallie Mae’s stockholders, is subject to required regulatory approvals, and is expected to close in late 2007. Sallie Mae will not pay further dividends prior to consummation of the proposed transaction. Following the closing, Sallie Mae will continue to have publicly traded debt securities and as a result will continue comprehensive financial reporting about its business, financial condition and results of operations.

Bank of America and JPMorgan have committed to provide debt financing for the transaction and to provide additional liquidity to Sallie Mae prior to the closing date, subject to customary terms and conditions. Sallie Mae’s existing unsecured Medium Term Notes will remain outstanding, and will not be equally and ratably secured with the new acquisition related debt. The acquisition financing will be structured to accommodate the repayment of all outstanding debt as it matures. In addition, Bank of America and JPMorgan have committed to make available a combination of facilities in order to support the ongoing liquidity needs of the company. Sallie Mae expects this transaction to have no material impact on the outstanding asset-backed debt and to remain an active participant in the asset-backed securities markets.

UBS Investment Bank acted as lead financial advisor to Sallie Mae and the Transaction Committee, which was also advised by Sandler O’Neill + Partners, L.P. and Greenhill & Co., LLC. Davis Polk & Wardwell is serving as legal advisor to Sallie Mae and provided legal advice to the Transaction Committee. For the investor group, JPMorgan and Banc of America Securities LLC are serving as financial advisors and Wachtell Lipton Rosen & Katz is serving as legal advisor. In addition, Sullivan & Cromwell LLP is serving as a legal advisor to J.C. Flowers.