In a fight to his finish at Sallie


It must be hard being Al Lord. Good times, bad times &

it doesn't matter. For Al, it seems that life is an unending series of battles against those who would unfairly deny him what he rightly deserves.

Back in the early '90s, it was Al fighting the Clinton administration, which had the audacity to suggest that the government could lower the cost of student loans by making the loans directly, rather than relying primarily on private lenders like Sallie Mae, where Al had worked his way up from comptroller to chief operating officer.

In the mid-'90s, it was Al who fought for shareholder rights as the ringleader of the Committee to Restore Value at Sallie Mae. In two bruising proxy battles and several trips to court, the group succeeded in forcing the resignation of Larry Hough, who had beaten Al for the top job at Sallie Mae, and in ousting Hough's supporters on the board of directors.

The ostensible reason the committee launched its boardroom coup was to stop Hough from cutting Sallie's ties to the government and putting it on a path toward privatization. But once ensconced in the executive suite, Al quickly embraced the privatization strategy and sent Sallie into another fight, this one with its biggest customers &

the banks and other student lenders that sold their government-guaranteed loans to Sallie to be serviced and securitized. From that point on, Al told them, Sallie would pay them less for their loans and compete with them directly in loan origination.

Give him credit: During his seven years as chief executive, Sallie cut costs, increased its market share and saw its stock price rise more than twice as fast as the overall market. So you might think that, after taking home more than $225 million in compensation, Al would have gone quietly after his retirement as chief executive in 2005 and channeled his fighting spirit into development of his personal $30 million golf course in Anne Arundel County, Md.

But that was before upstart competitors and regulators began to expose the cozy relationships that Sallie and other lenders had developed with colleges and college loan officers to steer business their way.

In the ensuing scandal, Sallie's share price was battered as investors feared that the new Democratic Congress would move to limit the excessive profits Sallie and others were earning from the guaranteed lending program. Determined to finally free the company from fickle investors and pesky analysts, Al, as chairman of the board, launched a search for a buyer who could take Sallie private and was willing to pay what he thought the company was worth. last spring, he'd found one in J.C. Flowers, a private-equity firm, and two of Sallie's biggest competitors, J.P. Morgan Chase and Bank of America, who offered to pay a premium $60 a share.

The ink was barely dry on the deal when the troubles began.

To accommodate Flowers and placate critics in Congress unhappy with Sallie's aggressive lobbying tactics, Al agreed to dump his longtime loyal lieutenant Thomas Fitzpatrick as Sallie's chief executive. And to tide the company over until the new owners could get permanent financing, Sallie borrowed $30 billion from its soon-to-be owners, Morgan and Bank of America.

It wasn't long before Flowers and the banks realized they had agreed to overpay for Sallie and threatened to pull out of the deal unless the price was reduced to $50 a share. But Al refused even to discuss a repricing, and began making disparaging comments about Flowers in the press. It was only after Flowers officially withdrew the offer that Al allowed as how maybe he could accept something less than $60, but by then it was too late. Now Al is back in court, trying to collect the $900 million "breakup fee" that will be small consolidation to shareholders who are out billions of dollars because of his hardball negotiating stance.

With the deal in shambles, and Sallie's stock in a free fall, Fighting Al concluded he had to return from retirement to take the helm once again and right the ship. But in a disastrous conference call with investors and analysts, Al's pugnacious style was on full display, dismissing questions before closing things out with a profanity. Sallie shares fell another 17 percent.

Meanwhile, Sallie's financial problems were mounting.

Because of rising cost of funds and new rules imposed by Congress, the company was forced to acknowledge that the profit margin on its government-guaranteed student loan business would quickly shrink. And with defaults rising on other loans, Sallie said it would tighten underwriting standards, which would reduce loan volumes going forward.

There's also the matter of that $30 billion bank loan from J.P. Morgan and Bank of America, which, now that the buyout is dead, needs to be refinanced. Sallie claims to be talking with 10 different financial institutions. But according to the Wall Street Journal, the interest rate being demanded is a whopping 12 percent.

And just when an investor might have concluded things couldn't have gotten any worse, there was an Enron-like moment when Sallie reported that it had lost $2 billion on an "equity forward" contract with Citigroup that, in essence, was a bet that Sallie stock would rise. To pay off the bet and stave off a further downgrade in its once-stellar credit rating, the company was forced last month to issue $3 billion in new stock, further diluting the shares of current holders.

Now, with Sallie's shares selling for just under $20, Al finds himself fighting not just to save his company and his reputation, but his job as well. Earlier this week, the board of directors named Anthony Terracciano, a seasoned banker and turnaround specialist, to take over from Al as chairman of the board. A former executive was also brought back as chief financial officer.

Still, it may only be a matter of time before a group of disgruntled shareholder activists conclude that the crew whose many misjudgments got Sallie into this mess is not the one to get it out. Why, they could even call themselves the Committee to Restore Value at Sallie Mae.

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