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Sallie Buyers Fire Back

Let's get ready to rumble.

The J.C. Flowers-led private equity group balking on its $25 billion buyout of student lender Sallie Mae (SLM) is expected to issue its own salvo in what could be a drawn out legal battle.

In what is anticipated to be a tersely worded letter, the buying contingent -- which also includes Bank of America (BAC - Get Report), JPMorgan (JPM - Get Report) and Friedman Fleischer & Lowe -- plans to reiterate that the Reston, Va.-based student loan lender's lawsuit has no merit.

Sallie sued its buyers Monday, charging that they have no grounds for failing to complete a $60-a-share buyout agreed to in April. Sallie seeks to have the buyers close the deal at the agreed-upon terms -- or pay a $900 million termination fee.

The Flowers group has declined to close the merger at the current terms but has offered to renegotiate at a lower price, based on what it calls the changed economic and legislative environment.

The spat turns on the sides' differing definitons on what constitutes an adverse change in Sallie's business. The buyers are in effect arguing that changes in Sallie's circumstances will allow them to walk away without paying the breakup fee. Sallie has rejected that interpretation.

"There is no doubt that this company is worth less now than it was in April," one official familiar with the private equity group's thinking told The group believes Sallie's suit has no merit and that a judge will end up deciding the matter, the official says.

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