There's been quite a bit of drama with the The Blackstone Group L.P. (NYSE: BX)'s proposed $6.4 billion buyout of Alliance Data Systems Corporation (NYSE: ADS). In fact, in January, ADS filed a lawsuit against Blackstone (but it was quickly dropped).

However, things got a little easier today (according to a piece in the Wall Street Journal, which is a paid publication). That is, the Office of the Comptroller of the Currency said it will place a cap on the liability for Blackstone if ADS's credit card segment implodes (up to $400 million). Hey, in light of the turbulence in the financial markets, this is certainly a material issue and should be a relief for Blackstone.

Of course, there are still other issues, such as the credit crunch and the slowing economy. Such things make it difficult to justify a deal for ADS.

Yet, in today's trading, ADS's shares spiked 17% to $52.22. Then again, the buyout offer is still at a hefty $81.75. In other words, the Street thinks that -- if this deal gets done -- expect a much lower price.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Back on May 17, 2007, there was another typical multi-billion dollar private equity deal. That is, The Blackstone Group L.P. (NYSE: BX) agreed to pay $81.75 per share -- a total of $7.8 billion -- for Alliance Data Systems Corporation (NYSE: ADS).

In the press release, Chip Schorr, a Senior Managing Director at Blackstone, proclaimed: "We are excited about the opportunity to work together with management and with Alliance Data's dedicated employees to help continue to grow the business and further strengthen the company's competitive position."

Well, now the deal is in shambles, with ADS's stock price trading at a lowly $41.40. This week, Blackstone indicated that it is having troubles getting regulatory approval from the Office of the Comptroller of Currency (OCC), which wants Blackstone to provide a $400 million backstop of support (in the event there is a problem with the banking segment).

Over the past few months, investors were curious about the deal spread -- the difference between the acquisition offer and the market price -- of Blackstone (NYSE: BX)'s proposed buyout deal for Alliance Data Systems (NYSE: ADS). This was a tell-tale sign that the deal was in trouble.

Despite all this, there was still lots of talk that the deal would close. After all, ADS is a strong company (even if there are some issues with the economy). Besides, the merger agreement was airtight.

Well, investors failed to consider something important: regulatory hurdles. Basically, it seems that the Office of the Comptroller of Currency (OCC) wants Blackstone to be an unlimited source of financial support if there are troubles at ADS (this is perhaps based on the recent turbulence in the financial markets).

For a savvy firm like Blackstone, this was certainly a dealbreaker.

The recourse for ADS? Of course, the company may pursue litigation. However, this will be time-consuming and ugly.

Investors are making their own judgment: the stock price of ADS is down $23.87 to $41.73 in today's trading.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Back in late November, the stock price of Alliance Data Systems (NYSE: ADS) suddenly dropped more than 20%. The rumor was that Blackstone (NYSE: BX) was going to renegotiate its $7.8 billion buyout deal for the company.

Actually, the Securities and Exchange Commission is now investigating the matter.

Despite this, there is still some jitters with the deal. That is, an analyst for SunTrust Robinson Humphrey, Andrew Jeffrey, has downgraded the stock from a "buy" to "neutral." Basically, he's concerned about the slowing economy and the continued credit crunch. He thinks there's even a chance of a deal breakup, which could take the stock to the mid $40s.

Keep in mind that Blackstone recently ditched its deal for PHH Corp.(NYSE:PHH)because it was unable to raise the financing. As a result, the firm instead paid a $50 million breakup fee.

Interestingly enough, the Delaware Court may be more amenable for deal bust-ups as seen with the recent case between United Rentals (NYSE:URI)and Cerberus (check out a piece in the NY Times). In fact, according to M&A professor Steven Davidoff, the ADS merger agreement has some ambiguities that are similar to the Cerberus deal.

And the markets are showing some concern as well. In today's trading, ADS' stock price is down 1% to $72.99. The buyout price is $81.75.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Alliance Data Systems (NYSE: ADS) is a data junkie. The firm tracks consumer behavior and helps clients develop cost-effective loyalty and marketing programs.

Now, the company has decided to go private for $7.8 billion; the private equity buyer is the Blackstone Group.

Interestingly enough, ADS is the result of the financial engineering of Welsh, Carson, Anderson & Stowe. Back in 1996, this private equity firm put together a variety of acquisitions to build the marketing giant. Then in 2001, ADS went public.

Now the firm has 600 customers in sectors like financial services, utilities and specialty retailers. What's more, the contracts tend to be long-term (lasting from three to five years). This is the kind of stability that always gets the attention of private equity firms.

Recently, ADS has suffered from a slowdown in earnings and this has resulted in a lagging stock price. I suspect that Blackstone will engage in some cost cutting to get things back on track.

On the news of the deal, ADS's stock price surged 25.73% to $79.16. Blackstone's offer is for $81.75 a share.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Successful businesses build lasting relationships with their customers. As they all discover, one of the best ways of enhancing such relationships involves the capacity to offer those customers a safe and efficient credit system. A leader in the field of helping businesses develop that capacity is headquartered in Dallas, Texas.

Alliance Data Systems (NYSE:ADS) offers marketing, credit and transaction services, managing over 107 million consumer relationships for more than 450 clients in the retailing, utility, financial services and hospitality sectors. Activities involve billing, payment processing, risk management and database marketing. Subsidiaries underwrite more than eighty private-label cards. Alliance Data employs some 9,300 associates, at more than 60 locations worldwide.

The company had good news for investors late last month, when it reported Q4 EPS of 70 cents and revenues of $524.5 million. Analysts had been looking for 66 cents and $500.5 million. Management also issued upside guidance for Q1 earnings and essentially in-line guidance for FY07 results. The CEO cited "increased visibility into 2007" for the solid view forward. JMP Securities subsequently reiterated its "market outperform" rating on the shares and boosted its price target to $80. The news kept ADS shares cycling through a positive 15-week trading channel. The price is currently consolidating at the base of that channel, where oversold Momentum, CCI and MACD technical parameters suggest the potential for a rise back toward the top. Correspondence of the stock's 90-day moving average to the base of the channel backs the rebound notion.

Altogether, brokers recommend the issue with nine "strong buys," five "buys" and two "holds." Analysts see an 18% average annual growth rate, through the next five years. The ADS Price to Sales ratio (2.54), Sales Growth rate (24.53%) and EPS Growth rate (29.63%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 94% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52-weeks, it has traded between $42.49 and $68.10. A stop-loss of $55.60 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.