Deals and IPOs

Alliance Data Terminates Sale to Blackstone

Reuters
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Alliance Data Systems said Friday it terminated a $6.76 billion sale to Blackstone Group affiliates and has sued to win a $170 million business interruption payment.

The failed deal is the latest leveraged buyout to buckle amid the global credit crunch, which has made it more difficult for private equity firms to obtain financing.

Alliance said the Blackstone affiliates tried to cancel the contract Friday. That attempt at cancellation was void because Blackstone was already in breach of the contract, Alliance said. Blackstone declined to comment.

Alliance said it filed suit Friday in New York state court to try to force Blackstone "to make full and timely payment of this fee" that was provided for in their May 17, 2007, agreement.

Alliance accused the Blackstone affiliates of breaching their obligations under the agreement in part by refusing to accept "reasonable and customary regulatory requirements" and by prolonging talks with regulators. Blackstone initially offered $81.75 per share for Alliance.

Blackstone Group said Saturday it would vigorously defend itself and "does not intend to settle."

Blackstone said the "only difference between this new suit and the previous suit" is that Alliance brought it in a New York court rather than Delaware "in an attempt to be before a different judge."

In January, Alliance Data filed a lawsuit against Blackstone seeking to force the private equity firm to complete the proposed $6.76 billion acquisition.

Alliance said at the time the buyout was in jeopardy and that it did not expect to win regulatory approval from the U.S. Office of the Comptroller of the Currency for the deal. It also said at that time that Blackstone had been unwilling to satisfy requirements that the OCC has set.

Blackstone had said the OCC placed unworkable conditions on the deal which would impose an "unlimited and indefinite" liability on the company and its funds.

The OCC requires that parent companies of a bank agree to provide support, when necessary, to maintain the bank's minimum capital and liquidity levels in cases when the controlling owner of a national bank is not a regulated bank.

To help resolve Blackstone's reservations about the regulatory requirements, Alliance said it proposed a cut in the takeover price. Blackstone rejected that offer and suggested more concessions, Alliance said.

The deal is another casualty of the credit crisis, which has made banks increasingly reluctant to take on credit risk because their balance sheets are strained by subprime mortgages, collateralized debt obligations and other forms of debt that are performing much worse than expected.

The credit crisis has imperiled a $20 billion buyout of Clear Channel Communications , and derailed deals involving audio equipment maker Harman International Industries , equipment renter United Rentals and student lender Sallie Mae , formally known as SLM Corp.