Both Sides Fall Short In Battle To Control Sallie Mae

Neither management nor rebellious shareholders of Sallie Mae had won a majority Thursday in their battle for votes on the future shape of the giant student loan marketer, and company officials said they were willing to make changes in their proposed business plan.

By an act of Congress, Sallie Mae - now a government-sponsored enterprise with $47 billion in assets - is due to go fully private by next spring. The company operates a regional processing center in downtown Spokane.

The two sides disagreed on the number of shareholder votes they had captured.

Sallie Mae management insisted they were in a dead heat with some 21 million votes each, or 40 percent of the shares voted. The dissidents claimed they had garnered nearly 22 million votes for their plan while management had gotten 19 million to 20 million.

Just over 26 million votes are needed to win. Hoping they could still prevail, company officials decided to hold voting open until June 5.

The company’s lawsuit challenging the dissidents in federal court is still pending.

“We’ve had a spirited effort,” Sallie Mae Chairman William Arceneaux told shareholders gathered at a suburban Washington hotel. “Obviously, there’s a lot of work to be done.”

Lawrence A. Hough, the company’s president and chief executive officer, later told reporters, “The writing’s on the wall. There’s something about these two plans they (shareholders) do not like.” To win approval, he said, a proposed plan will have to “look new” to shareholders.

“We will develop revisions to our plan that will address shareholder concerns,” Hough said.

The two sides have been in negotiations in recent days, but it wasn’t clear which issues they might be willing to compromise on.

Albert Lord, a former Sallie Mae executive who leads the dissidents, said the company’s “best offer” thus far was for his group to get four seats on the 16-member board of directors - a proposal he found unsatisfactory. The dissidents want their own slate of directors, which includes some current Sallie Mae executives, to be installed.

The dissidents want the company, once privatized, to compete with banks by making loans directly to students and schools rather than buying government-guaranteed loans from banks as it does now.

Sallie Mae, officially called the Student Loan Marketing Association, benefits now from its special status by borrowing at below-market interest rates because the government is expected to jump in if the company were unable to repay.

“We are very solid in our point of view” in opposing direct lending by Sallie Mae, Hough said. Such a move, he said, was “an extraordinarily risky undertaking …”

Lord appeared equally firm in his position that Sallie Mae should be in the direct student-loan business. “The banks will be upset - so be it,” he told reporters.

The dissidents also want to focus solely on the student loan business, rejecting the company’s proposal to branch into other businesses such as consulting, software development and insurance.

“I’m trying to talk and they’re hiding,” Lord said, referring to the company’s management. “We are ready to talk; we’re not going to stop counting votes.”

At a special meeting last Friday, the dissidents said a preliminary tally showed they had gotten nearly 23 million votes, while about 15 million were cast against them.