swoon could leave
with another black eye.
Shares of the Reston, Va., student lender plunged 9% in heavy trading Wednesday after the company's
private-equity buyers threatened to
The collapse of the deal would hammer Sallie shareholders. But it could also deliver another blow to UBS, which would see millions of dollars slip through its fingers should the deal crumble.
According to the terms of the Sallie merger outlined in public filings, UBS could score as much as $51 million if the deal is completed.
About $10 million of that is guaranteed cash that UBS gets paid based on its advisory work on the transaction. But the lion's share, about 80%, totaling $40.6 million, hinges on completion of the buyout.
In the grand scheme of the investment banking business, the loss would be small potatoes. But already buffeted by investment banking defections and top management changes, the Swiss bank can ill afford another public setback. A spokesman declined to comment.
Questions center on UBS' direction and the view that its investment banking business has slipped compared to its peer banks. Many observers believe that the firm has a long way to go to rebuild its investment banking business. The bank has lost rainmakers including Jeff McDermott and Ken Moelis, who spearheaded the Sallie deal.
UBS also has been caught up in the carnage in the mortgage market. The firm recently ousted CEO Peter Wuffli for Marcel Rohner. The move came after Dillon Read Capital Management became an early casualty of the subprime lending mess.
Missteps at Dillon embarrassed the firm, particularly since UBS had shifted about 80 traders over to man the now-collapsed platform, according to a recent
article. UBS went through a costly effort to then rebuild the business.
The Sallie deal hasn't definitively fallen apart, but the transaction's future isn't clear.
On Wednesday, Sallie's buyers, led by private-equity firm J.C. Flowers and banks
Bank of America
, told Sallie that legislation pending in Washington "could result in a failure of the conditions to the closing of the merger to be satisfied." Sallie said it "strongly disagrees" and "will take all steps to protect shareholders' interests."
The disagreement between Sallie and the Flowers group seems to center on a House bill that would slash subsidies paid to student-loan companies. The buyers may have concluded that the deal wouldn't make sense without the subsidies.
A spokeswoman at Sallie declined to comment on the news other than to say that Sallie believes the deal will still get done. The spokeswoman declined to provide an insight into Sallie's thinking.
A message left with an assistant for J. Christopher Flowers in New York requesting comment was not returned. Calls to BofA were directed to J.C. Flowers, and a call to JPMorgan was not immediately returned.