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Sallie Buyers Fire Back

The Flowers team has hired law firms Wachtell Lipton Rosen & Katz and Sullivan & Cromwell to represent it in the leveraged-buyout lawsuit. The group has 20 days from receiving Sallie Mae's lawsuit to respond to it, which could include filing its own countersuit, according to observers.

J.C. Flowers officials declined to comment, as did representatives of Sallie Mae.

An official following the private equity group's position cited a blog written by Wayne State University's Assistant Professor of Law Steven Davidoff. He believes that the private equity group may have a case to claim a material adverse change, after President Bush recently signed a bill trimming government funding for student lenders.

The clause, he writes, "only requires that the proposal be adverse in any respect. And SLM has already admitted that it estimates the bill is more adverse to core earnings over a five year period by 1.8%-2.1%," Davidoff writes. "A Delaware court will utilize the normal interpretation rules for contracts when interpreting this provision," he adds.

In a phone conversation, Davidoff says, "I think Flowers has a good case."

Speaking about the language of the merger agreement, he says, "It says it just has to be adverse. If they wanted to say materially adverse, they should have said that. They didn't," he comments.

"It's clear that the parties heavily negotiated the provision," he adds.

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