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Apr-20-2008Blackstone says Alliance Data lawsuit spurious(topic overview)
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The notice of termination was ineffective because the merger agreement cannot be terminated under the relevant termination provision by a party that is in breach. The Blackstone affiliates breached their contractual obligations by, among other things, refusing to accept reasonable and customary regulatory requirements and prolonging negotiations with regulators. For these reasons, Alliance Data today terminated the merger agreement. The merger agreement provides for the payment to Alliance Data of a $170 million business interruption fee in the event of such a breach by the Blackstone affiliates. Because the Blackstone affiliates deny being in breach, Alliance Data has commenced litigation seeking full and timely payment of this fee by Blackstone Capital Partners V L.P., the guarantor of the fee, in the New York State Supreme Court. Robert A. Minicucci, Chairman of the Special Committee of the Board of Directors of Alliance Data, said, "We are disappointed that Blackstone's affiliates chose not to satisfy their obligations to consummate this transaction. [1] 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.[2]
The contract requires Blackstone's affiliates to pay to Alliance Data a business interruption fee. 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. Despite the distraction caused by Blackstone, Alliance Data has continued to focus on delivering value to its clients and stockholders. The Company's strong performance and liquidity demonstrate Alliance Data's continued commitment to this goal."[1]
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.[2] "Unfortunately, our extensive efforts have not succeeded in completing the transaction within the time frame set forth in the merger agreement and the agreement has therefore been terminated," a Blackstone spokesman said in a statement. Alliance said it filed suit on 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. It is the second lawsuit it has filed against Blackstone over the deal.[3]
Dallas-based Alliance Data said it terminated the acquisition agreement, which was originally announced in May. Blackstone "chose not to satisfy their obligations to consummate this transaction,'' Robert A. Minicucci, chairman of the special board committee at Alliance Data, said in the statement. "We are compelled to litigate this issue to obtain payment in a full and timely manner.''[4]
The company'''s statement read, '''We have fully complied with all of our obligations under the merger agreement and any claims to the contrary by Alliance Data are purely self-serving. Blackstone will defend this suit vigorously and does not intend to settle it.'''[5] Alliance Data's brands include AIR MILES(R), North America's premier coalition loyalty program, and Epsilon(R), a leading provider of multi-channel, data-driven technologies and marketing services. For more information about the company, visit its website, www.AllianceData.com. Such statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. These risks, uncertainties and assumptions include those made with respect to and any developments related to the termination of the proposed merger with an affiliate of The Blackstone Group, including risks and uncertainties arising from actions that the respective parties to the merger agreement may take in connection therewith.[1] DALLAS, April 18, 2008 /PRNewswire-FirstCall via COMTEX/ -- Alliance Data Systems Corporation (NYSE: ADS), a leading provider of transaction-based loyalty and marketing services, today announced that it has terminated the May 17, 2007 merger agreement providing for the acquisition of Alliance Data by affiliates of The Blackstone Group.[1] DALLAS -- Alliance Data Systems Corp. said Friday that it has terminated the 2007 merger with the Blackstone Group. ADS said last month that affiliates of Blackstone were in breach of their acquisition agreement.[6]
There is trouble brewing for New York-based buyout firm Blackstone Group LP, after Dallas-based Alliance Data Systems Corp., a credit card processing company said it would be suing Blackstone for breach of contract and also to collect the $170 million that it was to get from the company as break-up fee. Earlier, Blackstone refused to pay the fee after its plans to acquire Alliance Data fell through.[5] April 19 (Bloomberg) -- Alliance Data Systems Corp. plans to sue Blackstone Group LP to collect a $170 million break-up fee after the buyout firm failed to complete its takeover of the credit-card processor.[4]
Blackstone Group LP replied on Saturday to a lawsuit filed against the firm by Alliance Data Systems Corp. for $170 million saying it will defend itself vigorously and does not intent to settle. Get stories by e-mail on this topic.[7] NEW YORK (Reuters) - Private equity and real estate firm Blackstone Group (BX.N: Quote, Profile, Research ) said on Saturday it would vigorously defend itself against a lawsuit filed against it by Alliance Data Systems Corp (ADS.N: Quote, Profile, Research ) and "does not intend to settle."[3]
Alliance Data, which plans to file the lawsuit in New York Supreme Court, said Blackstone denies that it breached the contract.[4] Alliance Data said it would probably be filing the suit in New York Supreme Court. It says Blackstone has not accepted their contention that it was in breach of its contractual obligations.[5]
Alliance Data late Friday sued Blackstone in New York state court, seeking to recover a $170 million breakup fee.[8] ADS turned around and said it was terminating the agreement, and it filed suit in New York State Supreme Court seeking the $170 million fee for the contractual violations. It's actually the second time ADS has filed suit against Blackstone during the back-and-forth drama.[9]
Alliance filed the document with the New York Supreme Court, saying it isexpecting the payment "in a full and timely manner", the company said.[7]
Alliance Data rose $2.76, or 5.5 percent, to $52.84 in New York Stock Exchange composite trading before the company announcement. That's a 35 percent discount to Blackstone's $81.75 purchase price.[4] Shares in the company rose 5.5 percent on Friday, closing at $52.84. The price may be a far cry from the $81.75 a share that Blackstone had offered for the company, but it is at its highest point since late February, a few weeks after Alliance Data withdrew a lawsuit against its onetime buyer.[8] DealBook's Deal Professor argued in a post yesterday that the most likely course for Blackstone will be to unilaterally terminate the agreement and refuse to pay the reverse termination fee. He also suggested tat the wisest course for Alliance Data under such a scenario would be to let the lawsuit drop, given that fresh litigation could distract from a rebound that the credit-card processor is currently enjoying. Alliance Data said Wednesday it expects its first-quarter profit to range between 98 cents and $1 per share, citing strong business growth.[10] Blackstone originally offered $81.75 per share for Alliance Data Systems but in January said it couldn't close the deal because of objections from the U.S. comptroller of the currency, which regulates a bank owned by ADS.[6] 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.[2] The Blackstone Group's deadline to buy credit-card processor Alliance Data Systems passed with nary a word from either side on what will happen to the stalled $6.6 billion transaction.[10] Blackstone is liable for the fee because the New York-based firm refused to accept "reasonable and customary'' regulatory requirements and prolonged negotiations with regulators over the $6.6 billion transaction, Alliance Data said yesterday in a statement.[4] Blackstone agreed a $6.76 billion deal last May to buy the credit card transaction processor, but the deal collapsed on Friday, the latest leveraged buyout to buckle and descend into litigation since the credit crunch hit. Alliance on Friday sued Blackstone to win a $170 million business interruption payment, claiming the buyout firm breached its contractual obligations by prolonging negotiations with regulators and causing the deal not to be completed.[3]
The lawsuit was filed on Friday by the credit card service provider Alliance Data, claiming that Blackstone refused to accept reasonable and customary regulatory requirements, prolonging negotiations with regulators and hindering the fulfillment of the deal, Alliance stated.[7] Alliance Data said last month that Blackstone was using the regulatory hurdle as an excuse in order to "run out the clock.'' It said Blackstone breached the merger agreement, which required the firm to work with regulators to try to win approval.[4] Alliance Data Systems, citing the delay on the part of Blackstone Affiliates to consummate the transaction, have terminated the merger agreement.[2]
A filing by the U.S. Securities and Exchange Commission last year gave the opportunity to Blackstone, which manages the biggest leveraged buy-out fund in the world, to pull out if the deal does not go through by the established deadline. In January this year, Blackstone had said there were tough and almost impossible conditions that the Comptroller of Currency was placing before it for the business transaction at hand, i.e. the takeover of Alliance Data.[5] In January, Blackstone said that the Comptroller of the Currency was imposing unworkable conditions on the takeover of Alliance Data, which owns the OCC-regulated World Financial Network Bank. Ed Heffernan, Alliance Data's chief financial officer, told investors at an April 16 conference in Atlanta that the company is now outlining its prospects and strategies to shareholders rather than focusing on the buyout plan, which was announced 11 months ago. "We're right now in what we call deal purgatory, and hopefully that will pass, as we begin to start getting out and educating folks on the company, and what we do and how we do it,'' he said at the time.[4] The key question is whether Alliance Data will pursue that avenue and declare the private equity firm in breach of the deal agreement. As of 5 p.m. Friday, the company has made no such declaration. (The Deal Professor previously outlined the possible outcomes.) Though Alliance Data has yet to respond, investors have certainly showed their feelings about the situation.[8]
One trading day has passed since the Blackstone Group's deal for Alliance Data Systems expired late Thursday.[8] Alliance Data then sued Blackstone to force it to close the deal. It subsequently withdrew the suit, citing Blackstone'''s statements '''committing''' itself to renegotiate a deal, and then threatened to sue Blackstone again when Blackstone allegedly failed to live up to its statements.[10] In May 2007, Blackstone announced a deal to purchase Alliance Data for $6.6 billion, but the deadline for the deal to close expired on April 17.[7] The deal valued Alliance Data at $81.75 a share. It's shares closed on Friday at $52.84.[3] 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.[2]
According to reports, the agreement - made almost one year ago- valued Alliance Data at $81.75 per share.[7] The LBO is the latest to fail since global credit markets melted down last year, boosting borrowing costs and slowing the U.S. economy. In September, New York-based Kohlberg Kravis Roberts & Co. pulled out of its agreement to buy Harman International Industries Inc., the Washington-based maker of Infinity and JBL audio equipment, for $8 billion, citing a decline in the business. Cerberus Capital Management LP, also based in New York, dropped its $4 billion takeover of Greenwich, Connecticut-based United Rentals Inc., the largest U.S. construction-equipment rental company, in November. Piper Jaffray analyst Robert Napoli raised his rating on Alliance shares to "buy'' from "neutral'' yesterday and set a price target of $74 a share.[4]
As of April 18, only $1.6 million in letters of credit were outstanding under that agreement, which provides solely for the issuance of letters of credit and does not provide for direct borrowings, the Hoffman Estates, Illinois-based company said in the filing. Sears, which operates Kmart and Sears stores, said most of its outstanding letters of credit are issued under its $4.0 billion, five-year revolving credit facility, expiring March 2010, which has a $1.5 billion letter of credit sublimit. The company said it is now using its $4.0 billion revolving credit facility, and hence the termination of the letter of credit agreement will not have any effect on its liquidity. Sears said it is evaluating whether or not to replace the letter of credit agreement at this time.[2]
The $6.4 billion offer for the credit card processor expired at 11:59 p.m. Thursday night, per the merger agreement that was filed last May.[8] The Blackstone affiliates that are parties to the merger agreement today repudiated the agreement by sending the Company a notice purporting to terminate the contract.[1] The ADS statement said Blackstone affiliates that are parties to the merger sent the company a notice "purporting to terminate the contract." ADS said the Blackstone notice was ineffective and issued their own termination statement.[6]
Reacting strongly to the decision, Blackstone affiliates have sent a notice to Alliance Data System purporting to terminate the contract.[2] The contract requires Blackstone's affiliates to pay to Alliance Data a business interruption fee.[2]
Issuing a statement Friday, Alliance Data said the $170 million represented money that Blackstone is liable to pay, since it not only rejected certain '''reasonable and customary''' regulation requirements but also delayed the negotiations with regulators for a considerable amount of time.[5] Blackstone said in January that it may not close the purchase because federal regulators want it to provide open-ended funding support to an Alliance Data bank unit.[10]
Alliance Data Systems Corp. and the Blackstone Group are apparently going to skip the marriage and go straight to divorce court.[9] 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.[2]
Alliance Data (NYSE: ADS) is a leading provider of marketing, loyalty and transaction services, managing over 120 million consumer relationships for some of North America's most recognizable companies. Using transaction-rich data, Alliance Data creates and manages customized solutions that change consumer behavior and that enable its clients to create and enhance customer loyalty to build stronger, mutually beneficial relationships with their customers.[1] Shelley Whiddon, a spokeswoman for Alliance Data, didn't return a phone message after business hours seeking comment.[4] Headquartered in Dallas, Alliance Data employs over 9,000 associates at more than 60 locations worldwide.[1]
Such statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. These risks, uncertainties and assumptions include those made with respect to and any developments related to the termination of the proposed merger with an affiliate of The Blackstone Group, including risks and uncertainties arising from actions that the respective parties to the merger agreement may take in connection therewith. [11] 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.[2]
The breakup announced Friday is almost certainly permanent, though. "We are disappointed that Blackstone's affiliates chose not to satisfy their obligations to consummate this transaction," Robert Minicucci, chairman of the committee of board members at ADS in charge of negotiating the buyout, said in the news release.[9] The news is not only a victory for Blackstone. It shows that private equity firms can walk away from many of the deals that they made in early 2006. Weak credit markets are the cause of breaking the deals because they have driven higher interest rates and an economy that could hurt profits at the businesses they planned to buy. None of that states the core of the new reality, which is that financial buyers can take whatever promises they made and throw them out the window. No matter what they said, they can claim no obligations. It is an ethical collapse just as much as it is a financial one.[12]
Past that point, Blackstone can walk away from the deal without even paying the $170 million breakup fee stipulated in the contract.[8] The troubled $6.4 billion buyout bid for Dallas-based ADS finally collapsed late Friday, with ADS officially calling off the purchase and going to court to try to get a $170 million "business interruption fee" from onetime suitor Blackstone.[9] According to Reuters, ADS has now sued Blackstone for a much more modest "$170 million business interruption payment."[12]
The shares of Blackstone Group closed the regular trading session at $19.02, up 39 cents, on a volume of 3.1 million shares. [2] The original buy-out deal was for $6.76 billion or $81.75 a share.[12] The Dallas-based credit-card services provider said then that the affiliates must cure the breach and complete the $6.5 billion deal, reached in Maylast year.[6]
The transaction allowed Blackstone, manager of the world's largest leveraged-buyout fund, to end the deal if it wasn't completed by the deadline, according to a U.S. Securities and Exchange Commission filing last year.[4] The Blackstone-Alliance Data transaction was the latest to hit the dead-end after the slump in the global credit markets last year. That slump had a very adverse impact on the economic climate in the U.S., leading to increased borrowing costs and slowing down the economy of the country itself.[5]
The company accused Blackstone of breaching the deal agreement by refusing to make all attempts to win regulatory approval. [8] Blackstone couldn't reach "a satisfactory resolution'' with the U.S. Office of the Comptroller of the Currency, the company said today in an e-mailed statement.[4]
ADS claimed in a news release that the termination notice from Blackstone was invalid because Blackstone was already in violation of the terms of the contract.[9] 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.[2]
ADS called off that suit when Blackstone agreed to give the merger another try. [9] Shares of ADS gained $2.76 to close at $52.84 before the termination was announced.[9]
SOURCES
1. Alliance Data Terminates Merger Agreement with Blackstone Affiliates
2. RTTNews - Breaking News, financial breaking News, Positive EPS Surprises, Stock research .
3. Blackstone says Alliance Data lawsuit spurious | Reuters
4. Bloomberg.com: U.S.
5. Alliance Threatens $170 Million Lawsuit Against Blackstone - The Money Times
6. Merger between Alliance Data and Blackstone terminated | Chron.com - Houston Chronicle
7. Blackstone to Defend Against Alliance Datas $170 Mln Suit - International Business Times -
8. Alliance Data Sues Blackstone, Again - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
9. ADS suing Blackstone again over failed buyout | Dallas Morning News | News for Dallas, Texas | Dallas Business News
10. Deadline Passes in Alliance Data Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
11. => Alliance Data Terminates Merger Agreement with Blackstone Affiliates
12. Alliance Data loses its fight with Blackstone - BloggingStocks
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