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Currency and Crab Legs

It almost seems like there are three kinds of pending buyouts. The deals where the financial sponsors want out, the deals where the lenders want out, and the deals where both want out. Where Alliance Data Systems sits among these options is anyone's guess. Believe it or not, the fact that Alliance filed suit last Friday, pushing for a $170 million breakup fee as compensation for the failed deal doesn't really clear matters up on this count.
Back in February, Alliance dropped its first lawsuit against Blackstone, yes, this would be the second one now, then indicating that Blackstone had made nice-nice like with Alliance and promised on the souls of its grandchildren to consummate the deal. Back then, the risk arbitrage guys who were betting the deal was likely to close were thrilled. Alliance's stock shot up 6% on the news to $55.00 or so. That sounds impressive, until you notice that Blackstone's offer was $81.75 last May.

When the Office of the Comptroller of Currency required a $400 million "backstop" of Blackstone to assure the financial strength of the new entity, Blackstone cited the change in an effort to avoid completing the deal. Alliance insisted that Blackstone had deliberately taken positions designed to agitate the OCC and thereby scuttle the deal. In Blackstone's defense, the OCC's first proposal actually appeared to impose unlimited liability for Blackstone insofar as Blackstone was on the hook for whatever capital requirements "the Alliance" may one day have needed. (They sound so evil when you say "the Alliance"). Considering the credit environment today, Blackstone was quite sharp to resist that kind of connection. "It's a merger agreement, not a suicide pact," quipped a Blackstone official. Now where have we heard that before?
When the manipulation accusation didn't stick well, Alliance proposed to dropped the purchase price by the amount of the backstop. This required shareholder approval, however, and Blackstone was soon being accused of delaying matters so to avoid the issue being taken to shareholders.
And, wouldn't you know it, as no good M&A scrap is complete without the presence of Carl Icahn, he disclosed significant positions in Alliance in February. In many ways this makes the story more about Icahn than Alliance or Blackstone. He's now in at least two "jeopardy deals" (Circuit City and Blockbuster as well as Alliance and Blackstone). You have to give him credit for being able to smell a fight, at least.
The matter is so tangled you can almost forgive the Wall Street Journal for quipping naively back in March:

Blackstone Group won a major regulatory victory in its proposed leveraged buyout of Alliance Data Systems. The Office of the Comptroller of the Currency removed the deal's biggest sticking point by putting a definite cap on the amount of money Blackstone would be required to provide as a backstop if ADS's credit-card bank ever fell into financial trouble.

I can just picture Schwartzman buttering up a doe-eyed Wall Street Journal reporter with all of 3 months of experience under her belt when the OCC capped the requirement. Never know what a potential juror may read, you know. "We really want this deal. Truly. Here, have some more crab legs. No, really. These are very hard to get."
So what's the good news? Between Alliance and PHH, Blackstone might find itself with a couple billion in cash still sitting around, and thus avoid going to the market again to raise capital. The bad news? Blackstone is going to piss off Carl Icahn. You wouldn't like him when he's angry.
Buyout Feud: Alliance Sues Blackstone [WSJ]