Sallie Mae Standing Firm

Sallie Mae(SLM Quote - Cramer on SLM - Stock Picks) still wants to do its $25 billion buyout.

Shares of the Reston, Va.-based student lender soared 9% Thursday on chatter that a buyout group led by private-equity investor J.C. Flowers may be willing to return to the table to renegotiate its purchase of Sallie. Sallie's jump came a day after the Flowers-led group -- which also includes Bank of America (BAC Quote - Cramer on BAC - Stock Picks) and JPMorgan Chase(JPM Quote - Cramer on JPM - Stock Picks) -- said it wouldn't complete the acquisition, due to "changes in the legislative and economic environment."

The sides agreed in April to a buyout at $60 a share -- a huge premium to Sallie's trading price at the time and to prices this week as well. Thursday's rally suggests investors are betting the sides will come together at a lower price.

But sources tell TheStreet.com that Sallie is not likely to budge on terms of the pending deal. The sources say the Sallie side believes the buyers' group has no contractual leeway to drop the deal under agreed-to terms.

People following the deal also say that if that's the case, the Flowers group may be forced to complete the deal at $60 a share -- because the buyers don't want to pay a costly breakup fee without getting any productive assets in return.

"It would be much less painful to do the deal for them than to pay $900 million for nothing," one source tells TheStreet.com, referring to the breakup fee called for in April's contract.

The Chris Flowers-led group has insisted that new student loan bills, signed Thursday by President Bush, have materially altered the deal by cutting some $20 billion in government subsidies from firms that provide student loans. Sallie says the legislation is expected to crimp its net income by about 2% annually over the next five years -- but since the legislation was fully expected prior to the deal, the company argues that it cannot legally be used as an out-clause for the prospective buyers.

Given that notion and Sallie's belief that there are no merits to declare a so-called material adverse change claim, the student lender is likely to attempt to play hardball with the private-equity consortium.

If the two sides cannot agree on terms, a lengthy court battle appears likely.

A call to Flowers' offices in New York was not immediately returned, nor was a call to Sallie Mae.