BEHIND THE NEWS: It’s not just the big boys who’ll cash in on buyout

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Sallie Mae isn’t even headquartered here. So you might figure the April 16 announcement that an investment group was buying the company for an eye-popping $25 billion would mean little for the 2,300 workers who toil at the student-loan company’s Fishers’ office. After all, the big paydays in these kinds of deals only go to the top brass, right?

Not in this case. Reston, Va.-based Sallie Mae is one of those rare companies that doles out stock options to its whole work force. Nationally, only 15 percent of public companies provide options to most or all of their workers, according to The National Center for Employee Ownership in Oakland, Calif.

“It’s been successful getting people energized about the business and being involved,” said June McCormack, a Sallie Mae executive vice president based in Fishers.

And it’s made Sallie Mae employees a princely sum.

Sallie Mae established its local presence when it bought the not-for-profit USA Group for $770 million seven years ago. The 2,000 or so USA Group workers who joined Sallie Mae received a slug of 3,000 options off the bat, and since then they’ve received additional option awards.

Now that an investment group led by New York-based J.C. Flowers & Co. has agreed to pay $60 a share for Sallie Mae, the rank-and-file employees who have been with the company that whole span and haven’t exercised any of their options now hold stashes worth about $250,000 apiece, said Lisa York, a spokeswoman for the company.

It’s all driven by sterling stock performance. Options give recipients the right to buy stock in the future at the price on the date of grant, so they only have value if shares rise in price. Since the USA Group deal closed in July 2000, Sallie Mae shares have risen more than 200 percent. In the same span, the S&P 500 has been essentially flat.

To be sure, the top executives at Sallie Mae are sitting on even bigger gains. For example, McCormack, who came aboard with the USA Group acquisition, holds options worth more than $5.4 million, Securities and Exchange Commission filings show.

Sallie Mae’s board and executive team don’t provide options companywide because they’re magnanimous types, of course. They’re in pursuit of a virtuous circle-they believe options give employees an incentive to be better workers, which, in turn, creates wealth for all the company’s investors.

But it’s no coincidence that Sallie Mae regularly turns up on national lists of best employers. The option grants are just one sign that company leadership truly values the efforts of those in the trenches.

As further evidence, consider what Earl Goode, a USA Group director now serving on Sallie Mae’s board, told IBJ a day after the buyout announcement:

“One of the things I was interested in as a USA Group director, and again in this transaction, was to ensure that the employees of this organization, who really made all this possible, were appropriately provided for,” said Goode, who in his day job serves as Gov. Mitch Daniels’ chief of staff.

That’s not a sentiment you hear from the top every day.

Another Emmis offer?

Jeff Smulyan’s bid to take Emmis Communications Corp. private fizzled last year when a board committee concluded he didn’t dangle a rich enough price.

Now, speculation is heating up that Smulyan, the company’s CEO and founder, may make another run.

“We believe Jeff Smulyan likely will bid for Emmis again in 2007,” Bear Stearns analyst Victor Miller says in a new report.

Goldman Sachs analyst Mark Wienkes added in a report: “We believe there is an increased probability that [Smulyan] could make another attempt … as early as May.”

The speculation may be helping to fuel a recent runup in Emmis shares. They were trading late last week at $9.65-up $2.02, or 26 percent, since March 5.

An Emmis spokeswoman was not immediately available for comment.

Hhgregg’s IPO plans

Hhgregg Inc. has yet to reveal many of the details of its plan to raise $172 million in an initial public offering. The preliminary prospectus filed with the SEC on April 18 didn’t disclose, for instance, how many shares it would sell or at what price.

But here’s a safe bet: The per-share price will provide a robust profit to the company’s majority owner, Los Angeles-based Freeman Spogli & Co.

The private equity firm plowed $111 million into the privately held company in February 2005 in a leveraged buyout. As part of the transaction, the company sold $165 million in bonds, and CEO Jerry Throgmartin’s family and others cashed in $285 million in company shares.

By taking Hhgregg public, Freeman Spogli is following a playbook it’s used many times before-including with Galyan’s Trading Co. It was majority shareholder in the Plainfield-based sporting goods retailer when it went public in 2001 at $19 a share, nearly three times the average price existing investors had paid for their shares.

Three years after the IPO, Pittsburgh-based Dick’s Sporting Goods bought Galyan’s for $362 million.

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