Return of the mac: flowers tries to renegotiate Sallie mae price

Following last week's story on the controversial material adverse change (Mac) clause, a deal far larger than Harman's $8bn (£3.93bn) sale to Kohlberg Kravis Roberts appears to have cratered.

The $25bn (£12.27bn) buyout of student lending business SLM, known as Sallie Mae, by private equity group JC Flowers looks off after Flowers cited not one but two Macs. The deal is three times the size of Harman and it features the cream of Wall Street, with Wachtell Lipton Rosen & Katz and Sullivan & Cromwell advising the acquirers and Davis Polk & Wardwell advising Sallie Mae.

The cratered deal offers further confirmation that private equity houses are prepared to use the summer's credit crunch to withdraw from highly leveraged public-to-private deals. The question on everybody's lips now is how many of these deals are there, and how many will reach the courts?"The issue is whether the parties in these deals settle out or litigate," says one Wall Street M&A partner. "If logic trumps emotion they'll settle at some price. The trouble is, people get emotionally involved. That's the danger."

The Sallie Mae deal floundered over two Macs: the credit crunch and new legislation on education finance enacted in late September.

If Flowers and funders JPMorgan Chase and Bank of America walk away it could cost them $900m (£441.74m). Last week Flowers fired the opening shot in a renegotiation, offering $50 (£24.50) a share instead of the original $60 (£29.50), plus warrants it claims could be worth $10 (£4.90) a share in time.

"They're looking to cut the cash price, but are still trying to do a deal and not just walk away and be the blackest of black hats," says another New York M&A partner. "Just be a shade of grey."

So far no bidder has had the nerve to go to court. As one partner says: "A Mac is a very high standard in M&A-ville. It's a high-risk strategy."

No one knows whether Sallie Mae will reach court. If it does, the lawyers will be ready.

Decisions, decisions. After what seemed like an eternity, White & Case's new leadership team, led by go-get-'em chairman Hugh Verrier, finally started work this Monday (1 October). And, oh boy, is the firm in safe hands. Verrier is a wildcat; a human dynamo. Watch in awe as he rips up the rulebook and kicks off his assault on the world's legal markets.

Just kidding. Hugh's not quite ready yet.

You might recall that Verrier was eventually chosen to head White & Case after one of the longest election processes in law firm history. We did a story on it when the process started - in March 2006.

Now the firm finally has its new structure in place, surely it is a great chance to talk about it? Not according to Verrier. He is still working on the finishing touches. The one decision Verrier has taken is to pass the communications buck to his PR, who had this to say: "Hugh's a chess player and this is a step-by-step process. He will start to be public about what his broader plans are over the next few weeks, but this transition will happen at his own pace." No change then.

Lordy. Who rattled his cage? Paul Pearlman, managing partner of New York firm Kramer Levin, got what we Brits describe as 'a bit shirty' when I quizzed him about the demise of his outfit's relationship with Berwin Leighton Paisner (BLP).

"We're not ending anything, we haven't ended anything," Pearlman snapped. "The only thing that's happened is we've recharacterised our relationship." Recharacterised? Priceless.

Never mind the fact that sources on the other side of the Atlantic confirm that BLP has dumped Pearlman and his firm. The real truth, according to Pearlman, is that the Kramer Levin-BLP relationship is alive and kicking and has just been "recharacterised". That's all.