Shareholder sues to bar Discover’s Citi deal

By Reuters
Posted Sep. 21, 2010 at 3:34 p.m.

A Student Loan Corp. shareholder has sued to block the sale of the company by majority owner Citigroup Inc. because it benefits the Wall Street bank at the expense of minority investors, according to a lawsuit.

Citigroup, which owns 80 percent of the Stamford, Connecticut-based student lender, agreed last week to sell it to Discover Financial Services for $600 million.

“The underpriced buyout is being foisted on Student Loan’s public shareholders because (Citigroup) is in desperate need to raise cash and divest noncore banking assets in the short term,” said the complaint, filed Monday in Chancery Court in Delaware against the company, its board and Citigroup.

Student Loan Corp is incorporated in Delaware.

The shareholder, Alan Kahn, said that at $30 per share, the deal is priced at a significant discount to the company’s book value of $65.74 per share, even though most of the student loans are guaranteed by the U.S. government.

The complaint, which seeks class action status, said Student Loans directors were acting to benefit Citigroup by selling the Wall Street bank the best loans.

Just before the transaction closes, Student Loan Corp will sell $8.7 billion of private student loans to Citigroup. Student Loan Corp will also sell $28 billion of federally guaranteed loans to Sallie Mae, the largest provider of such loans in the United States

Student Loan Corp and Citigroup did not immediately return calls seeking comment.

Shares of Student Loan were down 4 cents at $29.89 in morning trading, while Citigroup rose 0.8 percent at $4.02.

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