The Student Loan Corporation

The Student Loan Corporation

UPDATE: On October 31, 2011, the Delaware Chancery Court approved the $10 million settlement reached in the litigation, which was led by W&F partner Ethan Wohl.  The Court commended plaintiffs' counsel for achieving a "rare" result, i.e., an 8.3% increase over the price negotiated by the special committee, and approved what it deemed "an excellent settlement for the class." The Court also praised counsel for a "well-litigated case," and concluded that the benefit conferred on the class "amply justified" the fee requested. A copy of the transcript of the hearing approving the settlement can be downloaded from the link on the right.

The Student Loan Corp. litigation is a shareholder class and derivative action brought on behalf of the minority public shareholders of The Student Loan Corporation (Student Loan). The action challenges the fairness of a series of transactions through which Citibank – Student Loan’s 80% controlling shareholder – engineered asset sales and a merger of Student Loan for the stated purpose of divesting itself of “non-core” assets “as quickly as practicable.”

The merger price, $30 per share, was less than half Student Loan’s net book value per share, and was far below the $46.57 price at which Student Loan’s stock traded at the beginning of 2010 – leading one analyst to characterize the merger as occurring at a “fire-sale price.” While the defendants justified the merger as providing a premium to Student Loan’s pre-announcement trading price, its loss of 53% of its market value in 2010 prior to the merger announcement contrasted sharply with the market performance of its peers, which gained an average of 20% over the same period. Review of financial statements and other public disclosures for Student Loan and its peers indicated that the causes of the sharp divergence were changes in the terms of Student Loan’s related-party arrangements with Citibank, which severely impaired Student Loan’s profitability over the course of 2010.

The action was filed in September 2010 and expedited discovery – consisting of several hundred thousand pages of documents and five depositions of key transaction participants – was conducted through October and November. The Court of Chancery denied a preliminary injunction motion after a hearing on December 1, 2010 and set the matter down for trial in June 2011. The case was then settled in principle for approximately $10 million in late December 2010. The settlement is currently pending approval.

For additional information, please contact Ethan Wohl at 212 758 4097 or ewohl [at] wohlfruchter [dot] com.