Alliance Data Terminates Blackstone Deal - Update

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Friday evening, Alliance Data Systems (ADS) announced that it has terminated the merger agreement entered into on 17 May 2007 which provides for the acquisition of the company by the affiliates of the Blackstone Group.

The Dallas-based provider of transaction-based loyalty and marketing services has alleged that the affiliates of the Blackstone Group have breached their contractual obligations by refusing to accept reasonable and customary regulatory requirements. It has also been stated that Blackstone had been prolonging negotiations with the regulators.

Reacting strongly to the decision, Blackstone affiliates have sent a notice to Alliance Data System purporting to terminate the contract. However, the notice of termination served by Blackstone was ineffective, as the party in breach of contract cannot serve the notice of termination, as per the terms of the contract.

On May 17, 2007, Alliance Data Systems agreed to be acquired by Blackstone Capital Partners V L.P., an affiliate of Blackstone Group, for about $7.8 billion or $81.75 per share in cash, which represented a premium of about 30% over Alliance Data's May 16 closing share price of $62.96. For the purpose of the acquisition, Blackstone had formed two affiliates, Aladdin Solutions and Aladdin Merger Sub.

On January 25, 2008 Blackstone notified Alliance Data that it believed the regulatory approval condition to completing the transaction would not be satisfied and later confirmed that they did not intend to pursue the matter further with the OCC. In response, Alliance Data filed suit in the Delaware Court of Chancery on January 30, 2008, seeking to cause the Blackstone entities to perform their obligations under the merger agreement.

Following the court filings, Blackstone and its affiliates acknowledged their contractual obligations and committed to work to consummate the acquisition of the Company, including working with Alliance Data on proposals to resolve the regulatory issues. Based on these assurances, on February 8, 2008, Alliance Data withdrew without prejudice its litigation.

Last month, Alliance Data Systems had notified the Blackstone affiliates, Aladdin Solutions, Inc. and Aladdin Merger Sub, Inc. that they are in breach of the May 17, 2007 merger deal. In that notification, Alliance Data Systems stated that Blackstone and its affiliates have continued to prolong negotiations with the Office of the Comptroller of the Currency, or OCC and the Federal Deposit Insurance Corporation, or FDIC, refusing to accept reasonable and customary requirements relating to the provision of "source of strength" and other assurances in support of Alliance Data's banks.

Alliance Data Systems, citing the delay on the part of Blackstone Affiliates to consummate the transaction, have terminated the merger agreement. As per the terms of the merger agreement, Blackstone affiliates are liable to pay a sum of $170 million as business interruption fee in the event of breach of contract by Blackstone affiliates.

Since Blackstone affiliates have refused to accept that they are in breach of contract, Alliance Data Systems have decided to commence litigation in the New York State Supreme Court seeking full and timely payment of the business interruption fee by Blackstone affiliates.

Commenting on the developments, Chairman of the Special Committee of the Board of Directors of Alliance Data Systems, Robert Minicucci, has said, We are disappointed that Blackstone's affiliates chose not to satisfy their obligations to consummate this transaction. The contract requires Blackstone's affiliates to pay to Alliance Data a business interruption fee. However, given their repudiation of the merger agreement and continued refusal to fulfill their contractual obligations, and in order to protect the interests of Alliance Data's stockholders, we are compelled to litigate this issue to obtain payment in a full and timely manner.

The stock price of Alliance Data closed the regular trading session on Friday at $52.84, up 5.51%, or $2.76 a share, on a volume of 2.1 million shares. In the after-hours trading, the stock shed some of its gains and is currently quoted at $51.74, down 2.08% or $1.10 a share.

The shares of Blackstone Group closed the regular trading session at $19.02, up 39 cents, on a volume of 3.1 million shares. In the after-hours trading, the stock gained another 6 cents and is presently quoted at $19.08.

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