Sallie Mae To Splits in Two

One way of finding good stocks to buy is to wait for an historically strong company to spin off assets of split itself up. For example, in 1996, Dun & Bradstreet spun off Cognizant Technology Solutions. D&B also spun off Moody’s and Nielsen. Corporate Executive Board was spun off from the Advisory Board in the 1990s. Tyco recently spun off ADT and Pentair.

What you’ll often find is that one unit has been effectively subsidizing poorer performing units. This can create internal problems. Or a poor merger will mask how well a smaller unit has performed. Once freed from the mother ship, the small company can prosper as its own stock.

Today, Sallie Mae (or more formally, SLM Corp.) said it’s going to break itself in two. One company will be an education loan management business and the other will be a consumer banking business.

The principal assets of the business are likely to include approximately $118.1 billion in federally guaranteed loans, $31.6 billion in private education loans, $7.9 billion of other interest-earning assets; and a leading education loan servicing platform that services loans for about 10 million federal education loan customers. This includes 4.8 million customer accounts serviced under Sallie Mae’s contract with the U.S. Department of Education.

Sallie Mae’s private education loan origination and servicing businesses, including Sallie Mae Bank and the private education loans it currently holds, will operate separately under the Sallie Mae brand. Joseph DePaulo, executive vice president of banking and finance will serve as the consumer education lending franchise’s CEO.

The consumer banking business’ assets are likely to include about $9.9 billion of assets made up mostly of private education loans and related origination and servicing platforms; cash and other investments and the Sallie Mae Upromise Rewards program.

The two separate companies will initially be owned by Sallie Mae stockholders, but the separation of the businesses does not require a shareholder vote.

Earlier this year, Abbott Labs splits itself up. The medical products company is still called Abbott Labs ($ABT). The research company has the ugly name AbbVie ($ABV). Interestingly, it spinoffs, it’s often the less-interesting company that prospers. Both look too expensive here.

Posted by on May 29th, 2013 at 10:49 am

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