SLM deal on the rocks; Fremont deal on hold; Wendy's invites investor bid; DoJ vows swift action on XM-Sirius

By Evan Weinberger

New York, Sept. 26 - The acquisition of SLM Corp., the government-backed student-lending giant better known as Sallie Mae, by the private equity consortium led by J.C. Flowers & Co. appears headed to a messy end.

Meanwhile, Fremont General Corp. announced that a major investor was backing out of an agreement to purchase a significant stake in Fremont.

Separately, two deals that appear to be on the verge involve Wendy's International Inc. and the long-discussed XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. merger.

A major investor in Wendy's announced that his firm had been invited to a second round of bidding for the fast food restaurant chain and that he has the support of the company's founding family.

And a key government regulator told Congress that while more information on the deal was needed, the government would move as fast as it can on the Sirius-XM merger.

The GM deal with the United Auto Workers buoyed Wall Street. The deal even managed to drown out the Commerce Department reporting a tumble in durable goods orders. Reports that Bear Stearns Cos. was considering a sale of a major stake in the company, possibly to Warren Buffett, emerged late in the trading day.

The Dow Jones Industrial Average added 99.50 points, or 0.72%, Wednesday to close at 13,878.15. The Nasdaq added 15.58 points, or 0.58%, for a close of 2,699.03. And the Standard & Poor's 500 closed at 1,525.42, a gain of 8.21 points, or 0.54%.

Lines drawn in SLM, J.C. Flowers battle

Rumors were floating throughout the day that the consortium led by private equity shop J.C. Flowers & Co. would at least have something to say about its proposed takeover of Sallie Mae. What it had to say, according to a statement released by Sallie Mae late in the afternoon, was that the consortium was going to back out of the agreement.

"There is speculation that J.C. Flowers might come out with a letter against the SLM deal after the president signs the bill," the source said early in the afternoon.

The bill in question is H.R. 2669. On Thursday, President George W. Bush is scheduled to sign the bill into law. H.R. 2669 is better known as the Higher Education Access Act of 2007 or the College Cost Reduction Act. The bill will slash subsidies given to Sallie Mae and other student lenders as well as increase Pell Grants and other measures.

The law follows the discovery of shady business practices by many education lending institutions by Congressional investigators and New York attorney general Andrew Cuomo.

The law, as well as the credit squeeze, has already caused a great deal of acrimony in the long-discussed takeover of Sallie Mae by a consortium led by private equity shop J.C. Flowers & Co. The deal was originally set at $60 per share of Sallie Mae in April, for a total of around $25 billion.

Sallie Mae says the new law would impact its earnings by between 1.8% and 2.1% over the next five years, and that they had shared those estimates with the consortium. Sallie Mae also said that it had record new issuance in July and August.

It is believed that J.C. Flowers and the consortium will term the new law a "materially adverse condition," or MAC, to squeeze its way out of the deal. They had originally wanted to simply renegotiate. It is also believed that Sallie Mae will tell the consortium not so fast.

Reston, Va.-based Sallie Mae stock (NYSE: SLM) continued its tumble Wednesday, losing $1.24, or 2.68%, to close at $45.01.

Fremont General deal in jeopardy

Fremont General, a Santa Monica, Calif.-based private bank that operates primarily through its Fremont Investment & Loan arm, announced that a group of investors led by Gerald J. Ford is "not prepared to consummate" an $80 million deal that would give the investors a minority stake, according to a statement Wednesday morning. The original deal was announced in May.

According to the statement, Ford told the management of Fremont General that he and his consortium want to renegotiate the deal because of "certain changes" at the company. Among those changes: Fremont General was hammered in the subprime mortgage mess. Fremont General disagrees with Ford's assessment.

Unlike the acrimonious Sallie Mae-J.C. Flowers situation, Ford and Fremont General have agreed to discuss the investor group's concerns and possibly renegotiate the deal.

The news did not sit well with other investors watching Fremont General, and the company's stock (NYSE: FMT) lost 99 cents on Wednesday, or 19.30%, for a close of $4.14.

Wendy's deal on the grill

David Karam and his restaurant company Cedar Enterprise already own 134 Wendy's franchises. What's a few thousand more?

On Wednesday, Karam announced that he had been invited by the Dublin, Ohio-based restaurant company to participate in a second round of bids for the entire operation. Cedar has the influential backing of the Thomases, Wendy's founding family.

Also in the running is Nelson Peltz's Triarc Cos. Inc., which had bid between $37 and $41 per share, or a total of up to $3.6 billion. Cedar would not name a price.

Wendy's stock (NYSE: WEN) closed up 57 cents, or 1.72%, Wednesday at $33.63.

Sirius, XM shares gain

The Department of Justice's antitrust head, Thomas Barnett, reportedly told Congress Wednesday that while more information was needed on the XM and Sirius Satellite Radio merger, the Justice Department will act as quickly as possible.

Stock in both companies went up. Washington-based XM and New York-based Sirius announced the merger in February. The deal values each share of XM at $17.02. The deal has been the subject of hearings by various regulatory bodies in Washington, including the Federal Communications Commission.

XM stock (Nasdaq: XMSR) gained 86 cents, or 6.36%, to close at $14.38 on the day.

Sirius stock (Nasdaq: SIRI) added 14 cents, or 4.27%, for a $3.42 close Wednesday.

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