In one of the most complex and convoluted deal done on Wall Street in quiet a while, Student Loan Corporation (STU), which originates and services student loans and is a subsidiary of Citibank (C), will be sold. The company's shares surged over 40% on the news to $29.79. Student Loan Corporation (SLC) is 80% owned by Citi and the balance of the shares are publicly traded.
Student Loan announced that Discover Financial Services has entered into a definitive agreement to acquire SLC, and thereby become the owner of its private student loan business as well as $4 billion worth of its private student loans. Separately and immediately prior to the transaction, SLM Corporation (Sallie Mae) will acquire from SLC $28 billion of securitized federal student loans and related assets, and Citi will acquire from SLC certain federal and private student loans and other assets totaling $8.7 billion. Upon the closing of the transactions described above, shareholders of SLC will receive $30 per share.
The transaction is expected to close by the end of 2010. Discover Financial estimates that the deal will add 9 cents a share to its 2011 earnings. The other parties have not given direct guidance about what the deal may do to their future earnings.
"This opportunity fits well with our servicing scale and expertise," said Albert L. Lord, vice chairman and CEO, Sallie Mae. "We welcome our 1.3 million new customers and commit to assist them in meeting their education loan obligations."
The theory behind the transaction is that Sallie Mae is well qualified to service current loans and Discover is well qualified to run and ongoing loan business.
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