Blackstone Acquisition of Alliance Data Faces Regulatory Uncertainty

Implications: Blackstrone Group (BX) acquisition of Alliance Data (ADS)may be held up by the FDIC due to controversy over industrial loan companies?  Approval is likely to be delayed at least until the end of January.  It all hinges on whether Blackstone is viewed as a commercial or financial company.

Analysis: The Blackstone Group (BX) acquisition of Alliance Data (ADS) requires the approval of the FDIC because Alliance Data controls an FDIC insured industrial loan company (ILC).  These industrial banks have become the source of controversy in Washington because of a recent attempt by Wal-Mart to acquire one.  As a result, Congress has taken a keen interest in this type of bank, and the FDIC announced a one year moratorium on approving companies that engage in "commerce" from acquiring an ILC.  If the FDIC views Backstone as engaging in direct or even indirect commercial activiites, such as managing a chain of hotels, the approval will be subject to the moratorium.  Even after the expiration of the moratorium, the FDIC may not rush to approve an application that may be controversial.