Alliance Data (NYSE: ADS) had given Blackstone (NYSE:BX) notice that the private equity firm is no longer negotiating in good faith to complete a buy-out. The charge probably has the benefit of being true.

ADS stated its issues in a letter picked up by The Wall Street Journal: "The terms of the agreement are very clear. Instead, Blackstone and its affiliates continue to refuse to meet reasonable and customary regulatory requirements as an excuse to avoid completing the transaction," said Robert Minicucci, chairman of the special committee of ADS’s board of directors.

Blackstone says that the Office of the Comptroller of Currency has put conditions on the deal which make it harder and more expensive to complete. The buy-out firm indicated that it would entertain closing the transaction to buy ADS, but at a lower price. Now Blackstone has simply disappeared.

Who can blame Blackstone? The current credit markets make it nearly impossible to close without paying huge interest rates to reflect the risk. A poor private equity market has dropped shares in Blackstone down almost two-thirds since its IPO.

The trouble with all of those excuses is that institutions put money with firms like Blackstone because they have analysts who are smarter than everyone else. People like these could not have missed the potential issue of a government body making the deal more expensive.

Blackstone wants out. It does not want the risk. And, clearly it is willing to take its chances in court.

Douglas A. McIntyre

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