Amendment No. 1 to Form S-4
Table of Contents

As filed with the Securities and Exchange Commission on October 31, 2014

Registration No. 333-199128

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALLIANCE DATA SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7389   31-1429215
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

7500 Dallas Parkway, Suite 700

Plano, Texas 75024

(214) 494-3000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Leigh Ann K. Epperson

Senior Vice President, General Counsel and Secretary

Alliance Data Systems Corporation

7500 Dallas Parkway, Suite 700

Plano, Texas 75024

(214) 494-3000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Joseph L. Motes III

Akin Gump Strauss Hauer & Feld LLP

1700 Pacific Avenue, Suite 4100

Dallas, Texas 75201

(214) 969-4676

 

John Pitstick

Chief Financial Officer

Conversant, Inc.

30699 Russell Ranch Road, Suite 250

Westlake Village, California 91362

(818) 575-4500

 

Stewart L. McDowell

Gibson, Dunn & Crutcher LLP

555 Mission Street, Suite 3000

San Francisco, California 94105

(415) 393-8322

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and all other conditions to the proposed merger described herein have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  

Amount

to be

Registered(1)

  

Proposed

Maximum

Offering Price

Per Share

  

Proposed

Maximum
Aggregate

Offering Price(2)

   Amount of
Registration Fee(3)

Common stock, par value $0.01 per share

   4,647,088    N/A    $1,322,078,998    $153,626

 

 

 

(1) Based upon the estimated maximum number of shares of Alliance Data Systems Corporation’s common stock issuable in connection with the merger described herein.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rules 457(c) and 457(f) under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price of the common stock was calculated based on the market value of shares of Conversant, Inc.’s common stock (the securities being cancelled in the merger) as follows: (A) the product of (x) the amount equal to $35.00, multiplied by (y) 66,037,912, the estimated maximum number of shares of Conversant, Inc. common stock (calculated based upon Conversant restricted stock award grants vested as of December 10, 2014, Conversant restricted stock award grants that will accelerate in connection with the merger, and Conversant stock option awards vested and exercisable as of December 10, 2014) that may be exchanged for shares of Alliance Data Systems Corporation’s common stock in the merger, less (B) the estimated aggregate amount of cash to be paid by Alliance Data Systems Corporation in exchange for shares of Conversant, Inc.’s common stock (which equals $989,247,922).
(3) Determined in accordance with Section 6(b) of the Securities Act by multiplying the proposed maximum aggregate offering price by 0.0001162, of which amount $140,000.00 was paid on October 2, 2014.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further Amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED OCTOBER 31, 2014

 

LOGO   LOGO

PROPOSED MERGER—YOUR VOTE IS VERY IMPORTANT

The board of directors of each of Alliance Data Systems Corporation, or Alliance Data, and Conversant, Inc., or Conversant, has approved an agreement and plan of merger, which we refer to as the merger agreement, pursuant to which Alliance Data will acquire Conversant through the merger of Conversant with and into a newly formed, wholly-owned subsidiary of Alliance Data, with the new subsidiary surviving the merger as a wholly-owned subsidiary of Alliance Data.

In the proposed merger, Conversant stockholders will receive for each share of Conversant common stock the combination, which we refer to as the Base Consideration, of (x) 0.07037 of a share, which we refer to as the Fixed Exchange Ratio, of Alliance Data common stock and (y) an amount in cash equal to $35.00 minus the product of the volume weighted average price per share of Alliance Data common stock on the New York Stock Exchange, or the NYSE, for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger, which we refer to as the Parent Closing Trading Price, multiplied by the Fixed Exchange Ratio, which cash portion of the Base Consideration is referred to as the Per Share Cash Consideration. Notwithstanding the foregoing, the Per Share Cash Consideration will not exceed $18.62, which we refer to as the Per Share Cash Cap, and will not be less than $14.98, which we refer to as the Per Share Cash Minimum. In the event that the Per Share Cash Cap or Per Share Cash Minimum is reached, the Per Share Cash Consideration will be fixed at the Per Share Cash Cap or the Per Share Cash Minimum, as applicable, and the value that Conversant stockholders will receive for each share of Conversant common stock will fluctuate below or above $35.00, as applicable. Shares of Conversant common stock (i) held in Conversant’s treasury, (ii) held by Alliance Data or any of its subsidiaries, (iii) issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger, or (iv) as to which the holder has properly exercised appraisal rights will not receive the merger consideration (except that shares of Conversant common stock that were issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger shall be entitled to receive the consideration described under the heading “The Merger—Treatment of Conversant Stock Options and Other Equity Awards”). For more information regarding the merger consideration provisions contained in the merger agreement, see “The Merger—Consideration to be Received in the Merger.”

In lieu of the Base Consideration, each Conversant stockholder will have the right to elect to receive for each share of Conversant common stock eligible to receive merger consideration (1) cash equal to $35.00, except in the case in which the Per Share Cash Cap or Per Share Cash Minimum has been reached, in which case, cash equal to the sum of (x) the Fixed Exchange Ratio multiplied by the Parent Closing Trading Price and (y) the Per Share Cash Consideration, which election we refer to as a Cash Election, or (2) a number of shares of Alliance Data common stock equal to the sum of (x) the Fixed Exchange Ratio and (y) the quotient of the Per Share Cash Consideration divided by the Parent Closing Trading Price, which election we refer to as a Stock Election, subject, in the case of either a Cash Election or Stock Election, to proration. For more information regarding the election mechanics, see “The Merger—Consideration to be Received in the Merger.”

At the time they vote on the merger, Conversant stockholders will not know the cash portion of the merger consideration or, because the Parent Closing Trading Price will not be known at that time, the value of the total merger consideration. Further, if Conversant stockholders make a Stock Election or a Cash Election, they may not receive the combination of cash and/or shares elected, depending on the choices made by other Conversant stockholders. See “The Merger—Consideration to be Received in the Merger,” “Risk Factors—The value of the merger consideration to be received by Conversant stockholders may fluctuate in certain circumstances based on the market price of Alliance Data common stock. Conversant stockholders cannot be sure of the value of the merger consideration that will be paid to Conversant stockholders in the merger” and “Risk Factors—Conversant stockholders may receive a form of consideration different from what they elect.”

Alliance Data will not issue any fractional shares of Alliance Data common stock in the merger. Instead, Conversant stockholders will receive cash in lieu of any fractional shares based on the closing price of Alliance Data common stock reported on the NYSE on the trading day immediately preceding the closing of the merger.

Alliance Data common stock is listed on the New York Stock Exchange under the symbol “ADS.” Conversant common stock is listed on The NASDAQ Global Select Market under the symbol “CNVR.” We urge you to obtain current market quotations for shares of Alliance Data common stock and Conversant common stock.

Your vote is very important. The merger cannot be completed unless Conversant stockholders adopt the merger agreement. Conversant is holding a special meeting of its stockholders to approve the proposal to adopt the merger agreement and the other Conversant proposals described in this proxy statement/prospectus. Information about the Conversant special meeting of stockholders, the merger and the other business to be considered by Conversant stockholders at this meeting is contained in this proxy statement/prospectus. Conversant stockholders are urged to read this proxy statement/prospectus carefully. No stockholder vote of Alliance Data stockholders is required in connection with the merger. You should also carefully consider the risk factors beginning on page 29 of this proxy statement/prospectus.

Whether or not Conversant stockholders plan to attend the special meeting of stockholders, they should submit their proxies as soon as possible to make sure that their shares are represented at that meeting.

The Conversant board of directors unanimously recommends that Conversant’s stockholders vote (1) “FOR” the proposal to adopt the merger agreement, (2) “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and (3) “FOR” the proposal to adjourn the Conversant special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals.

 

/s/ Edward J. Heffernan

Edward J. Heffernan

President and Chief Executive Officer

Alliance Data Systems Corporation

   

/s/ John Giuliani

John Giuliani

President and Chief Executive Officer

Conversant, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated                     , 2014, and is first being mailed to stockholders of Conversant on or about                     , 2014.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 9, 2014

To the Stockholders of Conversant, Inc.:

A special meeting of stockholders of Conversant, Inc. will be held at Conversant’s corporate offices located at 30699 Russell Ranch Road, Suite 250, Westlake Village, CA 91362, on December 9, 2014 at 9:00 a.m., local time, for the following purposes:

 

    to adopt the Agreement and Plan of Merger, dated as of September 11, 2014, as it may be amended from time to time, which we refer to as the merger agreement, by and among Alliance Data Systems Corporation, Conversant, Inc. and Amber Sub LLC;

 

    to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger—Golden Parachute Compensation;”

 

    to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals if there are insufficient votes at the time of such adjournment to approve such proposals; and

 

    to transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

Completion of the merger is conditioned on, among other things, the adoption by Conversant’s stockholders of the merger agreement.

The accompanying proxy statement/prospectus further describes the matters to be considered at the special meeting. A copy of the merger agreement has been included as Annex A to this proxy statement/prospectus.

The Conversant board of directors has set October 29, 2014 as the record date for the special meeting. Only holders of record of shares of Conversant common stock at the close of business on October 29, 2014 will be entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements thereof. To ensure your representation at the special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet. Please vote promptly whether or not you expect to attend the special meeting. Submitting a proxy now will not prevent you from being able to vote at the special meeting by attending in person and casting a vote.

Under Delaware law, Conversant stockholders who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of Conversant common stock as determined by the Delaware Court of Chancery if the merger is completed, but only if such stockholders submit a written demand for such an appraisal prior to the vote on the merger agreement and comply fully with the procedures explained in the accompanying proxy statement/prospectus and in Section 262 of the General Corporation Law of the State of Delaware. However, if you choose to make an election with respect to the form of merger consideration you wish to receive, you will be deemed to waive your rights of appraisal.

The board of directors of Conversant unanimously recommends that you vote (1) “FOR” the proposal to adopt the merger agreement, (2) “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and (3) “FOR” the proposal to adjourn the Conversant special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals.

 

By Order of the Board of Directors,

/s/ John Giuliani

John Giuliani
President and Chief Executive Officer

Westlake Village, California

            , 2014

 

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PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR SHARES, PLEASE CONTACT CONVERSANT’S PROXY SOLICITOR, INNISFREE M&A INCORPORATED, BY TELEPHONE AT (888) 750-5834 (TOLL FREE FOR STOCKHOLDERS) OR (212) 750-5833 (COLLECT FOR BANKS AND BROKERS).

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Alliance Data and Conversant from other documents that are not included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this proxy statement/prospectus through the website of the United States Securities and Exchange Commission, or the SEC, www.sec.gov, or by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Alliance Data Systems Corporation

7500 Dallas Parkway

Suite 700

Plano, Texas 75024

Phone: (214) 494-3000

E-mail: leighann.epperson@alliancedata.com

Attention: Secretary

  

Conversant, Inc.

30699 Russell Ranch Road

Suite 250

Westlake Village, California 91362

Phone: (818) 575-4540

E-mail: eranderson@conversantmedia.com

Attention: VP, Investor Relations

   or
  

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders May Call Toll Free: (888) 750-5834

Banks and Brokers May Call Collect: (212) 750-5833

Investors may also consult Alliance Data’s or Conversant’s websites for more information concerning the merger described in this proxy statement/prospectus. Alliance Data’s website is www.alliancedata.com, and Conversant’s website is www.conversantmedia.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus.

In order to receive timely delivery of any documents in advance of the Conversant special meeting, your request should be received no later than December 2, 2014. In order to receive timely delivery of any documents in advance of the election deadline for the merger, your request should be received no later than five business days prior to the election deadline.

For more information, see “Where You Can Find More Information” and “Information Incorporated by Reference.”

VOTING ELECTRONICALLY OR BY TELEPHONE

Conversant stockholders of record on the close of business on October 29, 2014, the record date for the Conversant special meeting, may authorize the voting of their shares of Conversant common stock by telephone or Internet by following the instructions on their proxy card or voting form. If you have any questions regarding whether you are eligible to authorize the voting of your shares of Conversant common stock by telephone or by Internet, please contact Innisfree M&A Incorporated at the addresses or telephone numbers listed above.

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4, as may be amended from time to time, filed with the Securities and Exchange Commission, or the SEC, by Alliance Data, is a proxy statement/prospectus, which we refer to as this proxy statement/prospectus. It constitutes a prospectus of Alliance Data under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the shares of Alliance Data common stock to be issued to Conversant stockholders pursuant to the merger. It also constitutes a proxy statement for Conversant under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, because the board of directors of Conversant is soliciting proxies from its stockholders. It also constitutes a notice of meeting with respect to the special meeting of Conversant stockholders.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated             , 2014. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than             , 2014. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to Conversant stockholders nor the issuance by Alliance Data of shares of Alliance Data common stock to Conversant stockholders in the merger will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this proxy statement/prospectus regarding Alliance Data has been provided by Alliance Data, and information contained in this proxy statement/prospectus regarding Conversant has been provided by Conversant.

All references in this proxy statement/prospectus to “Alliance Data” refer to Alliance Data Systems Corporation, a Delaware corporation, and/or its consolidated subsidiaries, unless the context requires otherwise; all references in this proxy statement/prospectus to “Conversant” refer to Conversant, Inc., a Delaware corporation, and/or its consolidated subsidiaries, unless the context requires otherwise; all references to the “Merger Subsidiary” refer to Amber Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Alliance Data, formed for the sole purpose of effecting the merger; unless otherwise indicated or as the context requires, all references in this proxy statement/prospectus to “we,” “our” and “us” refer to Alliance Data and Conversant, collectively; and, unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of September 11, 2014, as it may be amended from time to time, by and among Alliance Data, the Merger Subsidiary and Conversant, a copy of which is included as Annex A to this proxy statement/prospectus.

 

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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Conversant Stockholders to be Held on December 9, 2014

This proxy statement/prospectus is available for viewing, printing and downloading at ir.conversantmedia.com/sec.cfm.

You may request a copy of the materials relating to the Conversant Special Meeting, including this proxy statement/prospectus and form of proxy for the Conversant Special Meeting, by contacting Conversant’s investor relations department by telephone at (818) 575-4540 or by e-mail at eranderson@conversantmedia.com.

A copy of the Conversant Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as filed with the SEC, other than exhibits, will be furnished without charge to any stockholder upon written or oral request to:

Conversant, Inc.

30699 Russell Ranch Road, Suite 250

Westlake Village, CA 91362

Phone: (818) 575-4540

E-mail: eranderson@conversantmedia.com

Attention: VP, Investor Relations

or

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders May Call Toll Free: (888) 750-5834

Banks and Brokers May Call Collect: (212) 750-5833

 

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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

     vi   

SUMMARY

     1   

SELECTED HISTORICAL FINANCIAL DATA OF ALLIANCE DATA

     16   

SELECTED HISTORICAL FINANCIAL DATA OF CONVERSANT

     20   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ALLIANCE DATA AND CONVERSANT

     24   

UNAUDITED COMPARATIVE PER SHARE DATA

     25   

MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS

     26   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     28   

RISK FACTORS

     29   

THE MERGER

     40   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     78   

THE MERGER AGREEMENT

     83   

INFORMATION ABOUT THE COMPANIES

     100   

CONVERSANT SPECIAL MEETING

     102   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     107   

DESCRIPTION OF ALLIANCE DATA CAPITAL STOCK

     118   

COMPARISON OF STOCKHOLDERS’ RIGHTS

     122   

LEGAL MATTERS

     132   

EXPERTS

     132   

FUTURE STOCKHOLDER PROPOSALS

     133   

HOUSEHOLDING OF PROXY STATEMENT/PROSPECTUS

     134   

OTHER MATTERS

     134   

WHERE YOU CAN FIND MORE INFORMATION

     135   

INFORMATION INCORPORATED BY REFERENCE

     135   

ANNEX A AGREEMENT AND PLAN OF MERGER

     A-1   

ANNEX B VOTING AGREEMENT

     B-1   

ANNEX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

     C-1   

ANNEX D SAMPLE PRORATION CALCULATIONS

     D-1   

ANNEX E LETTER AGREEMENT BETWEEN ALLIANCE DATA AND JOHN GIULIANI

     E-1   

ANNEX F OPINION OF MORGAN STANLEY & CO. LLC

     F-1   

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

     II-1   

SIGNATURES

  

EXHIBIT INDEX

  

 

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QUESTIONS AND ANSWERS

The following questions and answers briefly address some commonly asked questions about the proposed merger and the other matters to be considered at the special meeting of Conversant, Inc. stockholders. They may not include all the information that is important to you. We urge you to read carefully this entire proxy statement/prospectus, including the annexes and the other documents we refer to or incorporate by reference herein.

 

Q: Why am I receiving this proxy statement/prospectus?

 

A: The board of directors of each of Alliance Data Systems Corporation, or Alliance Data, and Conversant, Inc., or Conversant, has approved an agreement and plan of merger, which we refer to as the merger agreement, pursuant to which Alliance Data will acquire Conversant through the merger of Conversant with and into a newly formed, wholly-owned subsidiary of Alliance Data, with the new subsidiary surviving the merger as a wholly-owned subsidiary of Alliance Data.

The merger cannot be completed unless Conversant stockholders adopt the merger agreement.

Conversant is holding a special meeting of its stockholders to approve the proposal to adopt the merger agreement and the other Conversant proposals described in this proxy statement/prospectus. Information about this meeting, the merger and the other business to be considered by stockholders is contained in this proxy statement/prospectus.

We are delivering this document to you as a proxy statement of Conversant and a prospectus of Alliance Data. It is a proxy statement because the board of directors of Conversant is soliciting proxies from its stockholders. It is a prospectus because Alliance Data will issue shares of its common stock to Conversant stockholders in the merger.

Your vote is important. We encourage you to vote as soon as possible.

 

Q: Why is Conversant proposing the merger?

 

A: In the course of reaching its decision to approve the merger agreement and the related transactions, the board of directors of Conversant considered a number of factors in their deliberations and unanimously (i) determined that the merger is fair to, and in the best interests of, Conversant and its stockholders and declared the merger agreement and the merger advisable, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger, and (iii) recommended the adoption of the merger agreement to Conversant’s stockholders. For a more complete discussion of the factors that the Conversant board of directors considered, see “The Merger—Conversant Board of Directors’ Recommendation and Reasons for the Merger.”

 

Q: What proposals are Conversant stockholders being asked to consider?

 

A: Conversant stockholders are being asked to:

 

    adopt the merger agreement, or the Merger Proposal;

 

    approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger—Golden Parachute Compensation;”

 

    adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals if there are insufficient votes at the time of such adjournment to approve such proposal; and

 

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    transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

Q: How does the board of directors of Conversant recommend that I vote?

 

A: The board of directors of Conversant has approved the merger agreement and the other transactions contemplated thereby and determined that the merger agreement and the merger are advisable and in the best interests of the Conversant stockholders.

The board of directors of Conversant unanimously recommends that Conversant stockholders vote (1) “FOR” the proposal to adopt the merger agreement, (2) “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and (3) “FOR” the proposal to adjourn the Conversant special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals.

 

Q: What will stockholders receive in the merger?

 

A: In the proposed merger, Conversant stockholders will receive for each share of Conversant common stock the combination, which we refer to as the Base Consideration, of (x) 0.07037 of a share, which we refer to as the Fixed Exchange Ratio, of Alliance Data common stock and (y) an amount in cash equal to $35.00 minus the product of the volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger, which we refer to as the Parent Closing Trading Price, multiplied by the Fixed Exchange Ratio, which cash portion of the Base Consideration we refer to as the Per Share Cash Consideration. Notwithstanding the foregoing, the Per Share Cash Consideration will not exceed $18.62, which we refer to as the Per Share Cash Cap, and will not be less than $14.98, which we refer to as the Per Share Cash Minimum. In the event that the Per Share Cash Cap or Per Share Cash Minimum is reached, the Per Share Cash Consideration will be fixed at the Per Share Cash Cap or the Per Share Cash Minimum, as applicable, and the value that Conversant stockholders will receive for each share of Conversant common stock will fluctuate below or above $35.00, as applicable, to the extent that the Parent Closing Trading Price is below $232.75 or above $284.48. Shares of Conversant common stock (i) held in Conversant’s treasury, (ii) held by Alliance Data or any of its subsidiaries, (iii) issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger, or (iv) as to which the holder has properly exercised appraisal rights will not receive the merger consideration (except that shares of Conversant common stock that were issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger shall be entitled to receive the consideration described under the heading “The Merger—Treatment of Conversant Stock Options and Other Equity Awards”). For more information regarding the merger consideration provisions contained in the merger agreement, see “The Merger—Consideration to be Received in the Merger.”

At the time they vote on the merger, Conversant stockholders will not know the cash portion of the merger consideration or, because the Parent Closing Trading Price will not be known at that time, the value of the total merger consideration. Further, if Conversant stockholders make a Stock Election or a Cash Election, they may not receive the combination of cash and/or shares elected, depending on the choices made by other Conversant stockholders. See “The Merger—Consideration to be Received in the Merger,” “Risk Factors—The value of the merger consideration to be received by Conversant stockholders may fluctuate in certain circumstances based on the market price of Alliance Data common stock. Conversant stockholders cannot be sure of the value of the merger consideration that will be paid to Conversant stockholders in the merger” and “Risk Factors—Conversant stockholders may receive a form of consideration different from what they elect.”

 

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Alliance Data will not issue any fractional shares of its common stock. Instead, a Conversant stockholder will be entitled to receive cash in an amount determined by multiplying (x) the closing price of Alliance Data common stock reported on the NYSE on the trading day immediately preceding the day the merger is completed by (y) the fraction of a share of Alliance Data common stock to which such stockholder otherwise would be entitled.

 

Q: Can I make an election to receive all cash or all shares of Alliance Data common stock as consideration for my shares of Conversant common stock?

 

A: In lieu of the Base Consideration, each Conversant stockholder will have the right to elect to receive for each share of Conversant common stock eligible to receive merger consideration (1) cash equal to $35.00, except in the case in which the Per Share Cash Cap or Per Share Cash Minimum has been reached, in which case, cash equal to the sum of (x) the Fixed Exchange Ratio multiplied by the Parent Closing Trading Price and (y) the Per Share Cash Consideration, which we refer to as a Cash Election, or (2) a number of shares of Alliance Data common stock equal to the sum of (x) the Fixed Exchange Ratio and (y) the quotient of the Per Share Cash Consideration divided by the Parent Closing Trading Price, which election we refer to as a Stock Election, and which consideration we refer to as the Per Share Stock Election Consideration. The Cash Election and Stock Election are both subject to proration as described below. Regardless of whether a Cash Election or Stock Election is made and whether proration is required, all shares of Conversant common stock will receive the equivalent value as described in this proxy statement/prospectus with respect to calculation of the Base Consideration.

For more information regarding merger consideration and election mechanics, see “The Merger—Consideration to be Received in the Merger.”

 

Q: When do Alliance Data and Conversant expect to complete the merger?

 

A: Alliance Data and Conversant expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including the adoption of the merger agreement by the Conversant stockholders at the special meeting or any adjournment or postponement thereof. Alliance Data and Conversant currently expect to complete the merger in the fourth quarter of 2014. However, it is possible that factors outside of each company’s control could require Alliance Data and Conversant to complete the merger at a later time or not to complete it at all.

 

Q: What do I need to do now?

 

A: After carefully reading and considering the information contained in this proxy statement/prospectus, please (i) vote your shares as soon as possible so that your shares will be represented at Conversant’s special meeting, and (ii) if you desire to make an election with respect to the form of merger consideration for some or all of your shares of Conversant common stock, fill out the form of election, which will separately be made available to Conversant stockholders on the same day as this proxy statement/prospectus. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee, and on the form of election.

Even if you choose not to return your proxy card, or not to attend the special meeting, you may still complete, sign and return the form of election made available to you indicating your desire to make an election with respect to the form of merger consideration to be received by you in the merger. Any Conversant stockholder that fails to submit a proper form of election on or prior to 5 p.m., New York City time, on December 8, 2014 will be deemed to have elected to receive the Base Consideration for each of such stockholder’s shares of Conversant common stock eligible to receive merger consideration.

 

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Q: Who can vote at the special meeting of Conversant stockholders?

 

A: All Conversant stockholders of record at the close of business on October 29, 2014, or the record date, are entitled to vote at the special meeting of Conversant stockholders. As of the close of business on the record date, 66,857,176 shares of Conversant common stock were issued and outstanding.

 

Q: How many votes do I have?

 

A: Each share of Conversant common stock that you owned as of the close of business on the record date entitles you to one vote on each Conversant proposal.

 

Q: Is my vote important?

 

A: Your vote is important regardless of how many shares you own. Please take the time to read the instructions below and vote. Choose the method of voting that is easiest and most convenient for you, and please cast your vote as soon as possible.

 

Q: How do I vote?

 

A: You may vote before Conversant’s meeting of stockholders in one of the following ways:

 

    use the toll-free number shown on your proxy card;

 

    visit the website shown on your proxy card to vote or authorize the voting of your shares via the Internet; or

 

    complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.

You may also cast your vote in person at Conversant’s meeting of stockholders.

If your shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” stockholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

 

Q: Who will count the votes?

 

A: Broadridge Financial Solutions, Inc., the tabulator for the meeting, will count, tabulate and certify the votes at the special meeting of Conversant stockholders or any adjournment or postponement thereof. A representative of Broadridge Financial Solutions, Inc. will serve as the inspector of elections at the special meeting or any adjournment or postponement thereof.

 

Q: When and where is the special meeting of Conversant stockholders?

 

A: The special meeting of Conversant stockholders will be held at Conversant’s corporate offices located at 30699 Russell Ranch Road, Suite 250, Westlake Village, CA 91362 at 9:00 a.m., local time, on December 9, 2014. Subject to space availability, all Conversant stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 8:30 a.m., local time.

 

Q: What happens if I transfer my shares of Conversant common stock before the Conversant special meeting?

 

A:

The record date of the Conversant special meeting is earlier than the date of the Conversant special meeting and the date that the merger is expected to be completed. If you transfer your shares of Conversant common stock after the record date but before the Conversant special meeting, you will retain your right to vote at the

 

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  Conversant special meeting, but you will have transferred the right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold shares of Conversant common stock at the closing of the merger.

 

Q: May I transfer my shares of Conversant common stock once I have made an election?

 

A: No. If an election has been made for any of your shares of Conversant common stock, and such election has not been properly revoked, such shares may not be transferred.

 

Q: What constitutes a quorum?

 

A: To establish a quorum to transact business at the Conversant special meeting, there must be present at the meeting, in person or by proxy, a majority of the shares of Conversant common stock issued, outstanding, and entitled to vote at the meeting. Shares of Conversant common stock represented in person or by proxy (including shares that abstain or do not vote with respect to one or more of the matters to be voted upon) will be counted for the purpose of determining whether a quorum exists. Because each of the Conversant proposals is a non-discretionary item under applicable rules, as described below, broker non-votes will not be counted for the purpose of determining whether a quorum exists at the Conversant special meeting.

 

Q: What vote is required to approve each of the Conversant proposals?

 

A: To adopt the merger agreement: If a quorum is present, the affirmative vote of a majority of the outstanding shares of Conversant common stock entitled to vote on the proposal at the special meeting is required to adopt the merger agreement.

To approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger: If a quorum is present, the affirmative vote of the holders of a majority of the shares entitled to vote and present in person or by proxy at the special meeting is required to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger—Golden Parachute Compensation.”

To adjourn the Conversant special meeting: Whether or not a quorum is present at the special meeting, the affirmative vote of the holders of a majority of the shares entitled to vote and present in person or by proxy at the special meeting is required to adjourn the special meeting.

Concurrently with the execution of the merger agreement, each of Conversant’s directors and executive officers executed a Voting Agreement with Alliance Data that requires, among other things and subject to the terms and conditions and exceptions contained in the Voting Agreement, such Conversant directors and executive officers to (i) vote in favor of (and to grant a proxy to Alliance Data, or one of Alliance Data’s designated representatives, to vote in favor of) adoption of the merger agreement, the merger and the other transactions contemplated thereby, (ii) vote against any Company Takeover Proposal (as defined in the merger agreement), or any proposal or transaction involving Conversant, or amendment to the organizational documents of Conversant that would reasonably be expected to materially impede, interfere with, delay or adversely affect the merger or the other transactions contemplated by the merger agreement or change the voting rights of any class of capital stock of Conversant and (iii) not transfer such directors’ or officers’ shares of Conversant common stock prior to the earliest to occur of certain events, including the closing of the merger or the termination of the merger agreement, subject to certain permitted transfers to permitted transferees who agree to become bound by the Voting Agreement. As of September 11, 2014, Conversant’s directors and executive officers beneficially owned shares of, or securities convertible into or exercisable for, Conversant common stock representing approximately 6.5% of the outstanding shares of

 

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Conversant common stock on a fully-diluted basis. As of the record date for the Conversant special meeting, Conversant’s directors and executive officers beneficially owned shares of, or securities convertible into or exercisable for, Conversant common stock representing approximately 6.5% of the outstanding shares of Conversant common stock on a fully-diluted basis. A copy of the full text of the Voting Agreement is attached as Annex B to this proxy statement/prospectus.

 

Q: If my shares are held in “street name” by a broker or other nominee, will my broker or nominee vote my shares for me?

 

A: Your broker cannot vote your shares without instructions from you with respect to any of the proposals, and if you do not instruct your broker how to vote your shares on those proposals, your shares will be treated as “broker non-votes” for those proposals. You should instruct your broker as to how to vote your Conversant common stock, following the procedures your broker provides to you. Please check the voting form used by your broker.

 

Q: Can I vote at the Conversant special meeting if my shares are held in “street name”?

 

A: If your shares are held in street name, you must bring an account statement or letter from your brokerage firm or bank showing that you are the beneficial owner of shares of Conversant as of the record date in order to be admitted to the special meeting. To be able to vote your shares held in street name at the special meeting of Conversant stockholders, you will need to obtain a proxy card from the holder of record.

 

Q: What if I return my proxy card without indicating how to vote?

 

A: If you sign and return your proxy card without indicating how to vote on any particular proposal, your shares will be voted in accordance with the recommendation of the Conversant board of directors with respect to such proposal.

 

Q: What will happen if I fail to vote or I abstain from voting?

 

A: If you fail to vote, your shares will not be counted for purposes of establishing a quorum at the special meeting. It will have the same effect as a vote AGAINST the proposal to adopt the merger agreement, but it will have no effect on the adjournment proposal or, assuming a quorum is present, on the proposal to approve on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger. If you are present at the meeting but abstain from voting, your shares will be counted as represented at the special meeting of Conversant stockholders for purposes of determining whether a quorum is present, and it will have the same effect as a vote AGAINST the proposal to adopt the merger agreement, AGAINST the adjournment proposal and AGAINST the proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger.

 

Q: What will happen if I fail to instruct my broker, bank or nominee how to vote?

 

A: If you do not instruct your broker, bank or nominee on how to vote your shares, your broker may not vote your shares at the special meeting of Conversant stockholders (referred to as a “broker non-vote”). Such shares will not be counted for purposes of establishing a quorum. Broker non-votes will have the same effect as a vote AGAINST the adoption of the merger agreement, but will have no effect on the adjournment proposal or, assuming a quorum is present, on the proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger.

 

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Q: Can I change my vote after I have delivered my proxy or voting instruction card?

 

A: Yes. You can change your vote at any time before your proxy is voted at the special meeting of Conversant stockholders. If your shares are held in an account at a broker or other nominee, you should contact your broker or other nominee to change your vote. Otherwise, if you hold your shares directly and are a record holder, you can do this in one of four ways:

 

    by sending a notice of revocation to Broadridge Financial Solutions, Inc.;

 

    by sending a completed proxy card bearing a later date than your original proxy card;

 

    by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy or authorize the voting of your shares electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card; or

 

    by attending the meeting and voting in person (although your attendance alone will not revoke any proxy).

If you choose any of the first three methods, the described action must be completed and your notice of revocation, completed proxy card, electronic vote or telephonic vote, as applicable, must be received by Broadridge Financial Solutions, Inc. by 11:59 p.m. Eastern Time on the day before the special meeting of Conversant stockholders.

 

Q: Why have I been sent a form of election?

 

A: If the merger is approved and consummated, each share of Conversant common stock held by you (other than shares issued pursuant to a restricted stock award grant that remains unvested upon closing of the merger and any shares as to which you properly exercise your appraisal rights) will be converted into the right to receive the Base Consideration, by default. However, you may elect to receive the Stock Election or the Cash Election with respect to each of your shares of Conversant common stock. You may also make an election to receive the Base Consideration (which is what you would receive if you do not make an election). If you make a Stock Election or a Cash Election, the number of shares of Alliance Data common stock, the amount of cash, or both, that you receive will be subject to proration among all the shares with respect to which either a Cash Election or Stock Election is made if the amount of cash or the amount of shares of Alliance Data available as merger consideration is oversubscribed. In all instances, cash will be paid in lieu of any remaining fractional interest in a share of Alliance Data common stock. The form of election is the document made available to you on the same day as this proxy statement/prospectus to select the type of consideration you wish to receive with respect to each of your shares of Conversant common stock.

 

Q: Will I be sent a form of election if my shares of Conversant common stock are held through a bank, broker or other nominee?

 

A: If you hold your shares of Conversant common stock through a bank, broker or other nominee, your bank, broker or other nominee, as applicable, will provide you with instructions on how to make an election. If you fail to comply with your bank’s, broker’s or nominee’s instructions, your election will be disregarded and you will receive the Base Consideration.

 

Q: What happens if I do not send in my form of election?

 

A: If you do not respond on or prior to 5:00 p.m., New York City time, on December 8, 2014 and the merger is approved and consummated, you will receive the Base Consideration, unless you properly exercise appraisal rights.

 

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Q: What happens if I miss the election deadline?

 

A: Missing the election deadline is the same as not responding–you will receive the Base Consideration, unless you properly exercise appraisal rights. The election deadline is 5:00 p.m., New York City time, on December 8, 2014.

 

Q: May I revoke or change my form of election?

 

A: If you have made an election pursuant to a form of election you may, at any time prior to the election deadline, change or revoke your election by submitting written notice to the exchange agent. After the election deadline, you may not change or revoke your election, unless the merger agreement is terminated. If an election is timely revoked and the merger is consummated, the shares as to which such election previously applied shall automatically receive the Base Consideration, unless a new election is made pursuant to a form of election and submitted to the exchange agent prior to the election deadline.

 

Q: Am I guaranteed to receive what I ask for on the form of election?

 

A: If you elect to receive the Base Consideration (or do not make any election), you will receive the Base Consideration, subject to the payment of cash for any fractional shares of Alliance Data common stock you would be entitled to receive. If you make a Stock Election or a Cash Election, then you are not guaranteed to receive the form of consideration you elect to receive. The aggregate amount of cash and shares of Alliance Data common stock payable by Alliance Data in the merger will not be more than the aggregate amount of cash and shares of Alliance Data common stock that would have otherwise been payable by Alliance Data if all Conversant stockholders were to receive the Base Consideration. To the extent there is not enough cash or shares of Alliance Data common stock to pay pursuant to a Cash Election or a Stock Election, the consideration payable on each such share of Conversant common stock will be adjusted on a pro rata basis (and with the difference between such pro rated amount being made up in the remaining Alliance Data common stock or cash, as applicable) among all shares with respect to which either a Cash Election or Stock Election has been made. As a result, if you make a Stock Election or a Cash Election regarding your consideration, you may not receive the combination of cash and/or shares you elected, depending on the choices made by other Conversant stockholders.

 

Q: What are the material U.S. federal income tax consequences of the merger?

 

A: The federal income tax consequences of the merger will differ depending on whether the forward merger structure or reverse merger structured is used. The reverse merger structure (i.e., Conversant will be the surviving entity in the merger) will be used if the “Reverse Merger Condition” is satisfied. The forward merger structure will be used (i.e., Conversant will not be the surviving entity in the merger) if the Reverse Merger Condition is not satisfied.

If the merger is structured as a forward merger, Alliance Data and Conversant intend for the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. Assuming the merger so qualifies, for U.S. federal income tax purposes:

 

    Holders of Conversant common stock whose shares are exchanged in the merger for a combination of cash and Alliance Data common stock will not recognize a loss, but will generally recognize gain in an amount equal to the lesser of (i) the holder’s gain realized (i.e., the excess, if any, of the sum of the amount of cash received pursuant to the merger and the fair market value, as of the effective time of the merger, of Alliance Data common stock received pursuant to the merger over the holder’s adjusted tax basis in the shares of Conversant common stock surrendered) and (ii) the amount of cash received pursuant to the merger. In certain circumstances, this gain could be taxable as a dividend rather than a capital gain.

 

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    Holders of Conversant common stock whose shares are exchanged in the merger solely for cash will be required to recognize gain, and should be permitted to recognize loss, equal to the difference between the amount of cash received pursuant to the merger and the holder’s adjusted tax basis in the shares of Conversant common stock surrendered.

 

    Holders of Conversant common stock whose shares are exchanged in the merger solely for Alliance Data common stock will not recognize any gain or loss, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares.

The Reverse Merger Condition will be satisfied if, on the trading date immediately before the closing date of the merger, the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in, or in connection with, the merger (i.e., cash plus Alliance Data common stock). Because the structure that will ultimately be used to complete the merger will depend on the 40% test, including, in particular, the value of Alliance Data stock as of the trading date immediately before the closing date of the merger, we will not know at the time of the stockholder meeting which structure will be used. As a result, Conversant stockholders will not know which of the alternative tax consequences described in this answer will be applicable to them at the time they vote on the merger.

If the reverse merger structure is used, the merger will not qualify as a reorganization within the meaning of Section 368(a) of the Code. In that case, holders of Conversant common stock whose shares are exchanged in the merger for merger consideration will generally recognize gain or loss in an amount equal to the difference between (i) the fair market value, as of the effective time of the merger, of Alliance Data common stock received plus any cash received and (ii) the holder’s adjusted tax basis in the shares of Conversant common stock surrendered. Such gain or loss generally will be determined separately with respect to each block of Conversant shares surrendered in the merger, and generally will be long-term capital gain or loss if the holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger.

We would use the reverse merger structure to avoid the substantial corporate level tax that would result if the merger were to be structured as a forward merger and were to fail to satisfy the requirements for a reorganization under Section 368(a) of the Internal Revenue Code.

The tax consequences to Conversant stockholders of the merger are described in greater detail in the section entitled “Material U.S. Federal Income Tax Consequences.” You are urged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

 

Q: Does the merger require the approval of Alliance Data stockholders?

 

A: No, the merger does not require the approval of Alliance Data stockholders.

 

Q: Do I have appraisal rights?

 

A: Subject to the closing of the merger, record holders of Conversant common stock who do not vote in favor of the Merger Proposal and otherwise comply fully with the requirements and procedures of Section 262 of the General Corporation Law of the State of Delaware, or the DGCL, are entitled to exercise their rights of appraisal, which generally entitle stockholders to receive a cash payment equal to the fair value of their Conversant common stock exclusive of any element of value arising from the accomplishment or expectation of the merger. However, if you choose to make an election with respect to the form of merger consideration you wish to receive, you will be deemed to waive your rights of appraisal. A detailed description of the appraisal rights and procedures available to Conversant stockholders is included in “The Merger—Appraisal Rights.” The full text of Section 262 of the DGCL is attached as Annex C to this proxy statement/prospectus.

 

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Q: Should I send in my stock certificates now?

 

A: Yes, ONLY if you are a Conversant stockholder that is making an election with respect to the form of merger consideration to be received by you in the merger. In that case, you should send your stock certificates with your completed form of election by following the directions provided on the form of election. If you do not provide your stock certificates with your completed form of election, your form of election will be considered incomplete. If you do not provide your stock certificates now, you will receive a letter of transmittal from the exchange agent after the merger is completed, which will explain how to exchange your stock certificates for merger consideration.

No, if you are a Conversant stockholder that chooses not to make an election with respect to the form of merger consideration to be received by you in the merger. In that case, you should NOT send your stock certificates to the exchange agent until you receive a separate letter of transmittal from the exchange agent.

You should NOT send your stock certificates with your proxy card.

 

Q: How will the merger affect Conversant stock options?

 

A: Each option to purchase shares of Conversant common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will be converted into an option to purchase Alliance Data common stock on the same terms and conditions as applied to the existing option immediately prior to the merger, except that (1) the number of shares of Alliance Data common stock subject to the new option, rounded down to the nearest whole share, will be determined by multiplying the number of shares of Conversant common stock subject to the existing option by the Per Share Stock Election Consideration and (2) the exercise price per share of Alliance Data common stock under the new option, rounded up to the nearest whole cent, will be equal to the exercise price per share of Conversant common stock of the existing option divided by the Per Share Stock Election Consideration.

 

Q: How will the merger affect Conversant restricted stock?

 

A: Each Conversant restricted stock award that is not vested by its terms upon or before the closing of the merger will be converted into a restricted stock award with respect to whole shares of Alliance Data common stock, on the same terms, conditions and restrictions as applied to the existing award immediately prior to the merger, except that the number of shares of Alliance Data common stock subject to the new award, rounded down to the nearest whole share, will be equal to the product of the number of unvested shares of Conversant common stock under the existing award and the Per Share Stock Election Consideration. Each Conversant restricted stock award that is vested by its terms upon or before the closing of the merger will, at the effective time of the merger, entitle the holder thereof to the merger consideration described under “—Consideration to be Received in the Merger.”

If you hold shares of Conversant restricted common stock that will be unvested as of the election deadline but will vest prior to or in connection with the closing of the merger, we will provide instructions on how to make an election with respect to those shares.

 

Q: Will any other business be conducted at the Conversant special meeting or will other matters be voted on?

 

A: Conversant is not aware of any other business to be conducted or matters to be voted upon at the special meeting of Conversant stockholders.

 

Q: Where can I find the voting results?

 

A: Conversant will report the voting results from the special meeting of Conversant stockholders in its Current Report on Form 8-K, which it expects to file with the SEC within four business days after the special meeting.

 

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Q: Whom should I contact if I have any questions about the merger, the election mechanics or the proxy materials?

 

A: If you have any questions about the merger or if you need assistance in submitting your proxy or voting your shares or need additional copies of this proxy statement/prospectus, the enclosed proxy card or form of election, which will be made available to Conversant stockholders on the same day as this proxy statement/prospectus, you should contact either of the companies listed below:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders May Call Toll Free: (888) 750-5834

Banks and Brokers May Call Collect: (212) 750-5833

Broadridge Corporate Issuer Solutions, Inc.

51 Mercedes Way

Edgewood, NY 11717

(855) 449-0990 (Toll free)

 

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SUMMARY

This summary highlights selected information contained in this proxy statement/prospectus, or the annexes to this proxy statement/prospectus, and does not contain all the information that may be important to you. Alliance Data and Conversant urge you to read carefully this proxy statement/prospectus and the annexes to this proxy statement/prospectus in their entirety. Additionally, important information is also contained in the documents that we incorporate by reference into this proxy statement/prospectus. See “Where You Can Find More Information” and “Information Incorporated by Reference.” We have included page references in this summary to direct you to a more complete description of the topics presented below.

The Parties

Alliance Data Systems Corporation (See page 100)

Alliance Data is a leading global provider of data-driven marketing and loyalty solutions serving large, consumer-based businesses in a variety of industries. Alliance Data offers a comprehensive portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, marketing strategy consulting, analytics and creative services, direct marketing services and private label and co-brand retail credit card programs. Alliance Data focuses on facilitating and managing interactions between its clients and their customers through all consumer marketing channels, including in-store, online, catalog, mail, telephone and email, and emerging channels such as mobile and social media. Alliance Data captures and analyzes data created during each customer interaction, leveraging the insight derived from that data to enable clients to identify and acquire new customers and to enhance customer loyalty. Alliance Data believes that its services are becoming increasingly valuable as businesses shift marketing resources away from traditional mass marketing toward more targeted marketing programs that provide measurable returns on marketing investments. Alliance Data’s client base of more than 1,300 companies consists primarily of large consumer-based businesses, including well-known brands such as Bank of Montreal, Sobeys, Shell Canada, Procter & Gamble, AstraZeneca, Hilton, Bank of America, General Motors, FedEx, Kraft, Victoria’s Secret, Lane Bryant, Pottery Barn, J. Crew and Ann Taylor. Alliance Data’s client base is diversified across a broad range of end-markets, including financial services, specialty retail, grocery stores, drug stores, petroleum retail, automotive, hospitality and travel, telecommunications and pharmaceuticals. Alliance Data believes its comprehensive suite of marketing solutions offers it a significant competitive advantage, as many of its competitors offer a more limited range of services. Alliance Data believes the breadth and quality of its service offerings have enabled it to establish and maintain long-standing client relationships.

Alliance Data was incorporated under the laws of the State of Delaware on February 23, 1995. Its corporate headquarters are located at 7500 Dallas Parkway, Suite 700, Plano, Texas 75024 and its telephone number at that address is 214-494-3000. Alliance Data’s website address is www.alliancedata.com. Information contained on Alliance Data’s website is not incorporated by reference and does not constitute a part of this proxy statement/prospectus.

Conversant, Inc. (See page 100)

Conversant offers a comprehensive range of digital marketing services across its affiliate marketing and media segments. Conversant believes the unique combination of its scale and breadth of services; vast amounts of proprietary data spanning online and offline channels; cross-device capabilities; and industry leading approach to personalized communication positions Conversant to be the digital marketing services provider of choice for major marketers and the advertising agencies that service them. Conversant’s services help marketers achieve a variety of strategic objectives, including customer relationship management, new customer acquisition and branding. In the first quarter of 2014, the company changed its corporate name from ValueClick, Inc. to Conversant, Inc.

 

 

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Conversant was incorporated under the laws of the State of Delaware on October 9, 1998. Its corporate headquarters are located at 30699 Russell Ranch Road, Suite 250, Westlake Village, California 91362, and its telephone number at that address is (818) 575-4500. Conversant’s website address is www.conversantmedia.com. Information contained on Conversant’s website is not incorporated by reference and does not constitute a part of this proxy statement/prospectus.

The Merger Subsidiary (See page 101)

Amber Sub LLC, or the Merger Subsidiary, is a wholly-owned subsidiary of Alliance Data and was formed as a limited liability company under the laws of the State of Delaware on September 5, 2014 for the purpose of effecting the merger. Subject to the terms and conditions of the merger agreement and upon closing of the merger, Conversant will merge with and into the Merger Subsidiary, which will survive as a wholly-owned subsidiary of Alliance Data. At the effective time of the merger, the name of the Merger Subsidiary will change to Conversant LLC. However, if the “Reverse Merger Condition” described below is satisfied, Conversant will be the surviving entity in the merger. See “Material U.S. Federal Income Tax Consequences.”

The Merger Subsidiary has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the merger.

Risk Factors (See page 29)

Before voting at the Conversant special meeting, Conversant’s stockholders should carefully consider all of the information contained in or incorporated by reference into this proxy statement/prospectus, as well as the specific factors under the heading “Risk Factors,” including the risks that:

 

    The merger may not be completed on a timely basis or at all. The failure to complete the merger would eliminate, or any delay in the completion of the merger may significantly reduce, the benefits expected to be obtained from the merger and could adversely affect the market price of Alliance Data or Conversant common stock or their future business and financial results.

 

    The value of the merger consideration to be received by Conversant stockholders may fluctuate in certain circumstances based on the market price of Alliance Data common stock. Conversant stockholders cannot be sure of the value of the merger consideration that will be paid to Conversant stockholders in the merger.

 

    Conversant stockholders may receive a form of consideration different from what they elect.

 

    Uncertainties associated with the merger may cause a loss of management personnel and other key employees that could adversely affect the future business, operations and financial results of Alliance Data following the merger.

 

    Lawsuits have been filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary challenging the merger, and an adverse ruling may prevent the merger from being completed.

 

    Conversant stockholders will not know the federal income tax consequences to them of the merger at the time that they make an election as to the form of the consideration or at the time they vote. See “Material U.S. Federal Income Tax Consequences.”

 

    Current Alliance Data stockholders and Conversant stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management.

 

    Alliance Data may be unable to integrate successfully the businesses of Conversant and realize the anticipated benefits of the merger or do so within the intended timeframe.

 

    Sales of substantial amounts of Alliance Data common stock in the open market, by former Conversant stockholders or otherwise, could depress Alliance Data’s stock price.

 

 

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The Merger

The Merger Agreement (See page 83)

Alliance Data and Conversant have entered into the merger agreement attached as Annex A to this proxy statement/prospectus. We encourage you to read the entire merger agreement carefully because it is the principal document governing the merger.

Effect of the Merger (See page 40)

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Conversant will merge with and into the Merger Subsidiary, with the Merger Subsidiary surviving the merger as a wholly-owned subsidiary of Alliance Data. However, if the “Reverse Merger Condition” described below is satisfied, Conversant will be the surviving entity in the merger. See “Material U.S. Federal Income Tax Consequences.” We expect that, on a fully-diluted basis, the existing stockholders of Alliance Data and the former stockholders of Conversant will own approximately 93% and 7%, respectively, of the outstanding Alliance Data common stock following the merger.

Consideration to be Received in the Merger (See page 84)

In the proposed merger, Conversant stockholders will receive for each share of Conversant common stock (other than shares (i) held by Alliance Data or any of its subsidiaries, (ii) issued pursuant to a Conversant restricted stock award grant that remains unvested upon closing of the merger, (iii) as to which the holder has properly exercised appraisal rights or (iv) as to which a valid Cash Election or Stock Election has been made) the combination, which we refer to as the Base Consideration, of (x) 0.07037 of a share, which we refer to as the Fixed Exchange Ratio, of Alliance Data common stock and (y) an amount in cash equal to $35.00 minus the product of the volume weighted average price per share of Alliance Data common stock on the New York Stock Exchange, or the NYSE, for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger, which we refer to as the Parent Closing Trading Price, multiplied by the Fixed Exchange Ratio, which cash portion of the Base Consideration we refer to as the Per Share Cash Consideration. Notwithstanding the foregoing, the Per Share Cash Consideration will not exceed $18.62, which we refer to as the Per Share Cash Cap, and will not be less than $14.98, which we refer to as the Per Share Cash Minimum. In the event that the Per Share Cash Cap or Per Share Cash Minimum is reached, the Per Share Cash Consideration will be fixed at the Per Share Cash Cap or the Per Share Cash Minimum, as applicable, and the value that Conversant stockholders will receive for each share of Conversant common stock will fluctuate below or above $35.00, as applicable, to the extent that the Parent Closing Trading Price is below $232.75 or above $284.48. For more information regarding the merger consideration provisions contained in the merger agreement, see “The Merger—Consideration to be Received in the Merger.”

In lieu of the Base Consideration described above, each Conversant stockholder will have the right to elect to receive for each share of Conversant common stock eligible to receive merger consideration (1) cash equal to $35.00, except in the case in which (i) the Per Share Cash Cap or Per Share Cash Minimum has been reached, in which case, cash equal to the sum of (x) the Fixed Exchange Ratio multiplied by the Parent Closing Trading Price and (y) the Per Share Cash Consideration, which we refer to as the Cash Election, or (2) a number of shares of Alliance Data common stock equal to the sum of (x) the Fixed Exchange Ratio and (y) the quotient of the Per Share Cash Consideration divided by the Parent Closing Trading Price, which election we refer to as a Stock Election, and which consideration we refer to as the Per Share Stock Election Consideration, and, in the case of either a Cash or Stock Election, both are subject to proration as described below.

The Base Consideration otherwise payable on each share of Conversant common stock as to which either a Cash Election or Stock Election has been made, will be pooled and reallocated among all such shares of Conversant common stock as to which a Cash Election or Stock Election has been made. This pooling and reallocation means that each such share gets, to the greatest extent possible, all cash or all Alliance Data common

 

 

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stock, but with the consideration payable on each such share of Conversant common stock pro rated to the extent there is not enough cash or enough Alliance Data common stock to pay pursuant to each such election (and with the difference between such pro rated amount being made up in the remaining Alliance Data common stock or cash, as applicable). The aggregate amount of cash and shares of Alliance Data common stock payable by Alliance Data in the merger shall equal the aggregate amount of cash and shares of Alliance Data common stock that would have otherwise been payable by Alliance Data if no election had been made by Conversant stockholders, and all such stockholders were to receive the Base Consideration. Shares of Conversant common stock (i) held in Conversant’s treasury, (ii) held by Alliance Data or any of its subsidiaries, (iii) issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger, or (iv) as to which the holder has properly exercised appraisal rights will not receive the merger consideration (except that shares of Conversant common stock that were issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger shall be entitled to receive the consideration described under the heading “The Merger—Treatment of Conversant Stock Options and Other Equity Awards”).

The following table illustrates the value of the Base Consideration per share of Conversant common stock for different hypothetical Parent Closing Trading Prices (with the shaded lines defining the lower and upper boundaries of the collar).

 

Parent Closing
Trading Price (a)

   Fixed
Exchange Ratio
     Approx. Value of
Per Share
Stock Consideration (b)
     Approx. Per Share
Cash
Consideration
     Approx. Total Value of
Per Share Merger
Consideration
 

$220.00

     0.07037       $ 15.48       $ 18.62       $ 34.10   

$225.00

     0.07037       $ 15.83       $ 18.62       $ 34.45   

$230.00

     0.07037       $ 16.19       $ 18.62       $ 34.81   

$232.00

     0.07037       $ 16.33       $ 18.62       $ 34.95   

$232.75(c)

     0.07037       $ 16.38       $ 18.62       $ 35.00   

$233.00

     0.07037       $ 16.40       $ 18.60       $ 35.00   

$235.00

     0.07037       $ 16.54       $ 18.46       $ 35.00   

$240.00

     0.07037       $ 16.89       $ 18.11       $ 35.00   

$245.00

     0.07037       $ 17.24       $ 17.76       $ 35.00   

$255.00

     0.07037       $ 17.94       $ 17.06       $ 35.00   

$258.00

     0.07037       $ 18.16       $ 16.84       $ 35.00   

$258.61(d)

     0.07037       $ 18.20       $ 16.80       $ 35.00   

$259.00

     0.07037       $ 18.23       $ 16.77       $ 35.00   

$260.00

     0.07037       $ 18.30       $ 16.70       $ 35.00   

$265.00

     0.07037       $ 18.65       $ 16.35       $ 35.00   

$270.00

     0.07037       $ 19.00       $ 16.00       $ 35.00   

$275.00

     0.07037       $ 19.35       $ 15.65       $ 35.00   

$280.00

     0.07037       $ 19.70       $ 15.30       $ 35.00   

$284.00

     0.07037       $ 19.99       $ 15.01       $ 35.00   

$284.48(e)

     0.07037       $ 20.02       $ 14.98       $ 35.00   

$285.00

     0.07037       $ 20.06       $ 14.98       $ 35.04   

$290.00

     0.07037       $ 20.41       $ 14.98       $ 35.39   

$295.00

     0.07037       $ 20.76       $ 14.98       $ 35.74   

$300.00

     0.07037       $ 21.11       $ 14.98       $ 36.09   

 

(a) Hypothetical volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger.
(b) Note that per the terms of the merger agreement, any fractional shares of Alliance Data common stock payable to any holder of Conversant common stock will be aggregated and paid in cash.

 

 

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(c) Reflects a 10% reduction in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the lower boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Cap is reached.
(d) The 7-day volume weighted average price per share of Alliance Data common stock on the NYSE as of the close of business on September 10, 2014, the last business day prior to the date the merger agreement was executed, referred to in this proxy statement/prospectus as the Parent Signing Trading Price.
(e) Reflects a 10% increase in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the upper boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Minimum is reached.

For tabular illustrations of proration calculations for different hypothetical Cash Elections and Stock Elections that may be made by Conversant stockholders under the terms of the merger agreement, see Annex D to this proxy statement/prospectus.

The tables included or referenced above are for illustrative purposes only. The value of the merger consideration that a Conversant stockholder actually receives will be based on the actual Parent Closing Trading Price, and the mix of merger consideration that an electing Conversant stockholder actually receives will depend on the elections made by other Conversant stockholders.

At the time they vote on the merger, Conversant stockholders will not know the cash portion of the merger consideration or, because the Parent Closing Trading Price will not be known at that time, the value of the total merger consideration. Further, if Conversant stockholders make a Stock Election or a Cash Election, they may not receive the combination of cash and/or shares elected, depending on the choices made by other Conversant stockholders. See “The Merger—Consideration to be Received in the Merger,” “Risk Factors—The value of the merger consideration to be received by Conversant stockholders may fluctuate in certain circumstances based on the market price of Alliance Data common stock. Conversant stockholders cannot be sure of the value of the merger consideration that will be paid to Conversant stockholders in the merger” and “Risk Factors—Conversant stockholders may receive a form of consideration different from what they elect.”

Alliance Data will not issue any fractional shares of its common stock in the merger. Instead, Conversant stockholders will receive cash in lieu of any fractional shares in an amount determined by multiplying (x) the closing price of Alliance Data common stock reported on the NYSE on the trading day immediately preceding the date of the merger’s closing by (y) the fraction of a share of Alliance Data common stock to which the stockholder would otherwise be entitled.

The merger agreement provides for adjustments to the merger consideration to reflect fully the effect of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares, or any similar event with respect to Alliance Data common stock or Conversant common stock occurring between September 11, 2014 and the effective time of the merger.

Treatment of Conversant Stock Options and Other Equity Awards (See page 86)

Pursuant to the merger agreement, each Conversant stock option that is outstanding and unexercised immediately prior to the effective time of the merger will be converted into an option to acquire a number of shares of Alliance Data common stock, rounded down to the nearest whole share, determined by multiplying the number of shares underlying the existing Conversant stock option by the Per Share Stock Election Consideration, at an exercise price per share of Alliance Data common stock, rounded up to the nearest whole cent, equal to the per-share exercise price for the Conversant stock option immediately prior to the effective time of the merger divided by the Per Share Stock Election Consideration.

 

 

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At the effective time of the merger, each outstanding Conversant restricted stock award that is not vested by its terms upon or before the closing of the merger will, pursuant to the merger agreement, be converted into a restricted stock award with respect to whole shares of Alliance Data common stock, with the number of shares of Alliance Data common stock subject to each such converted restricted stock award, rounded down to the nearest whole share, determined by multiplying the number of shares of Conversant common stock subject to the existing restricted stock award by the Per Share Stock Election Consideration. Each Conversant restricted stock award that is vested by its terms upon the closing of the merger will, at the effective time of the merger, entitle the holder thereof to the merger consideration described under “—Consideration to be Received in the Merger.” However, in connection with the merger, Conversant’s President and Chief Executive Officer John Giuliani entered into an agreement with Alliance Data to, among other things, waive his right to acceleration of his outstanding unvested restricted stock awards. Additional information regarding this agreement and Mr. Giuliani’s restricted stock awards is included under the headings “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger—Treatment of Conversant Stock Options and Other Equity Awards” and “The Merger—Letter Agreement with John Giuliani.”

Each converted stock option or restricted stock award will be issued in respect of Alliance Data common stock under the Alliance Data 2010 Omnibus Incentive Plan, subject to the same terms and conditions as the respective Conversant stock option or restricted stock award as in effect immediately prior to the effective time of the merger (taking into account the adjustments to the number of shares and exercise price). Each Conversant stock incentive plan will be terminated by the board of directors of Conversant effective as of immediately prior to the effective time of the merger.

Approval of Alliance Data’s Board of Directors (See page 49)

After careful consideration, Alliance Data’s board of directors and the managers of the Merger Subsidiary unanimously approved the merger agreement, and Alliance Data’s board of directors unanimously approved the issuance of Alliance Data common stock in the merger. The compensation committee of Alliance Data’s board of directors unanimously approved the grant of replacement equity awards to the holders of Conversant equity awards, as provided in the merger agreement. See “The Merger—Treatment of Conversant Stock Options and Other Equity Awards.”

Recommendations of the Conversant Board of Directors (See page 49)

After careful consideration, the Conversant board of directors unanimously recommends that Conversant stockholders vote (1) “FOR” the proposal to adopt the merger agreement, (2) “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and (3) “FOR” the proposal to adjourn the Conversant special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals.

Opinion of Conversant’s Financial Advisor (See page 52 and Annex F)

In connection with the merger, Morgan Stanley & Co. LLC, Conversant’s financial advisor (which we refer to in this proxy statement/prospectus as Morgan Stanley), rendered to Conversant’s board of directors its oral opinion, subsequently confirmed in writing, that as of September 10, 2014, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Morgan Stanley, dated as of September 10, 2014, is attached as Annex F to this proxy statement/prospectus and is incorporated by reference in this proxy statement/prospectus in its entirety. The opinion sets forth, among other

 

 

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things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Morgan Stanley’s opinion is directed to Conversant’s board of directors and addresses only the fairness from a financial point of view of the consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement as of the date of the opinion. Morgan Stanley’s opinion did not in any manner address the prices at which shares of Conversant common stock or Alliance Data common stock would trade at any time in the future, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any officer, director or employee of Conversant, or any class of such persons. The opinion is addressed to the Conversant board of directors and does not constitute a recommendation to any stockholder of Conversant as to how to vote at the stockholders’ meeting to be held in connection with the transactions contemplated by the merger agreement, what elections to make with respect to the form of consideration to be received, or any other action with respect to the transactions contemplated by the merger agreement.

Interests of Conversant’s Directors and Executive Officers in the Merger (See page 66)

Conversant stockholders should be aware that the directors and executive officers of Conversant have interests in the proposed merger that are different from, or are in addition to, the interests of Conversant stockholders generally. These interests relate to the treatment of equity-based compensation awards held by directors and executive officers of Conversant in the merger, provision of severance benefits, and the indemnification of Conversant’s directors and officers by Alliance Data.

Material U.S. Federal Income Tax Consequences of the Merger (See page 78)

The federal income tax consequences of the merger will differ depending on whether the forward merger structure or reverse merger structured is used. The reverse merger structure (i.e., Conversant will be the surviving entity in the merger) will be used if the “Reverse Merger Condition” is satisfied. The forward merger structure will be used (i.e., Conversant will not be the surviving entity in the merger) if the Reverse Merger Condition is not satisfied. The Reverse Merger Condition will be satisfied if on the trading date immediately before the closing date of the merger, the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in, or in connection with, the merger (i.e., cash plus Alliance Data common stock). Because the structure that will ultimately be used to complete the merger will depend on a variety of factors, including, in particular, the value of Alliance Data stock as of the trading date immediately before the closing date of the merger, we will not know at the time of the stockholder meeting which structure will be used. As a result, Conversant stockholders will not know which of the alternative tax consequences described below will be applicable to them at the time they vote on the merger.

If the merger is structured as a forward merger, Alliance Data and Conversant intend for the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. Assuming the merger so qualifies, for U.S. federal income tax purposes:

 

    Holders of Conversant common stock whose shares are exchanged in the merger for a combination of cash and Alliance Data common stock will not recognize a loss, but will generally recognize gain in an amount equal to the lesser of (i) the holder’s gain realized (i.e., the excess, if any, of the sum of the amount of cash received pursuant to the merger and the fair market value, as of the effective time of the merger, of Alliance Data common stock received pursuant to the merger over the holder’s adjusted tax basis in the shares of Conversant common stock surrendered) and (ii) the amount of cash received pursuant to the merger. In certain circumstances, this gain could be taxable as a dividend rather than a capital gain.

 

 

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    Holders of Conversant common stock whose shares are exchanged in the merger solely for cash will be required to recognize gain, and should be permitted to recognize loss, equal to the difference between the amount of cash received pursuant to the merger and the holder’s adjusted tax basis in the shares of Conversant common stock surrendered.

 

    Holders of Conversant common stock whose shares are exchanged in the merger solely for Alliance Data common stock will not recognize any gain or loss, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares.

If the reverse merger structure is used, the merger will not qualify as a reorganization within the meaning of Section 368(a) of the Code. In that case, holders of Conversant common stock whose shares are exchanged in the merger for merger consideration will generally recognize gain or loss in an amount equal to the difference between (i) the fair market value, as of the effective time of the merger, of Alliance Data common stock received plus any cash received and (ii) the holder’s adjusted tax basis in the shares of Conversant common stock surrendered. Such gain or loss generally will be determined separately with respect to each block of Conversant shares surrendered in the merger, and generally will be long-term capital gain or loss if the holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger.

We would use the reverse merger structure to avoid the substantial corporate level tax that would result if the merger were to be structured as a forward merger and were to fail to satisfy the requirements for a reorganization under Section 368(a) of the Internal Revenue Code.

The tax consequences to Conversant stockholders of the merger are described in greater detail in the section entitled “Material U.S. Federal Income Tax Consequences.” You are urged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

Accounting Treatment of the Merger (See page 71)

Each of Alliance Data and Conversant prepares its financial statements in accordance with United States generally accepted accounting principles, or GAAP. The merger will be accounted for using the acquisition method of accounting with Alliance Data treated as the acquirer of Conversant for accounting purposes. This means that the assets, liabilities and commitments of Conversant, the accounting acquiree, are adjusted to their estimated fair value at the acquisition date. Under the acquisition method of accounting, definite-lived intangible assets are amortized over their remaining useful lives. Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually.

Appraisal Rights (See page 73)

Alliance Data stockholders do not have appraisal rights in connection with the merger.

Subject to the closing of the merger, record holders of Conversant common stock who do not vote in favor of the Merger Proposal and otherwise comply fully with the requirements and procedures of Section 262 of the General Corporation Law of the State of Delaware, or the DGCL, are entitled to exercise their rights of appraisal, which generally entitle stockholders to receive a cash payment equal to the fair value of their Conversant common stock exclusive of any element of value arising from the accomplishment or expectation of the merger. Notwithstanding the foregoing, holders of shares of Conversant common stock that choose to make an election with respect to the form of merger consideration they wish to receive will be deemed to waive their rights of appraisal. The full text of Section 262 of the DGCL is attached as Annex C to this proxy statement/prospectus.

 

 

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Regulatory Approvals Required for the Merger (See page 71)

Alliance Data, Conversant and the Merger Subsidiary have each agreed to use reasonable best efforts in order to obtain all regulatory approvals required in order to complete the merger. These approvals include antitrust filings with the U.S. Department of Justice and the U.S. Federal Trade Commission and expiration or termination of the required waiting periods. Alliance Data and Conversant each filed pre-merger notification and report forms with the U.S. antitrust authorities pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, and, in accordance with the merger agreement, requested “early termination” of the waiting period, which request for “early termination” was granted on September 24, 2014. On September 24, 2014, Alliance Data and John Giuliani, Conversant’s President and Chief Executive Officer, each filed notifications pursuant to the HSR Act with respect to Mr. Giuliani’s receipt of Alliance Data common stock upon closing of the merger and requested “early termination” of the waiting period, which “early termination” was granted on October 3, 2014.

Alliance Data and Conversant were also required to file with the antitrust regulators in Germany. The companies submitted their notification to the Federal Cartel Office, or the FCO, in Germany on September 29, 2014. The FCO gave its authorization for the merger on October 15, 2014.

Conditions to Closing of the Merger (See page 92)

Alliance Data and Conversant expect to complete the merger after all the conditions to the merger in the merger agreement are satisfied or waived, including receipt of the requisite stockholder approval at the Conversant special meeting and all required regulatory approvals. Alliance Data and Conversant currently expect to complete the merger in the fourth quarter of 2014. However, it is possible that factors outside of the parties’ control could require that the merger be completed at a later time or not completed at all.

The obligation of each party to complete the merger is subject to the satisfaction or waiver of several conditions set forth in the merger agreement, which are summarized below:

 

    Conversant stockholders shall have approved the Merger Proposal;

 

    no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the merger;

 

    the registration statement of which this proxy statement/prospectus forms a part shall have been declared effective under the Securities Act and no stop order suspending the effectiveness of such registration statement shall have been issued (and not withdrawn) by the SEC and no proceedings for that purpose shall have been initiated or threatened in writing (and not withdrawn) by the SEC;

 

    the shares of Alliance Data common stock to be issued in the merger shall have been approved for listing on the NYSE, subject to official notice of issuance; and

 

    all waiting periods applicable to the closing of the merger under the HSR Act (which condition was satisfied on October 3, 2014), or any applicable international antitrust filing requirements (which condition was satisfied on October 15, 2014), shall have expired or been terminated.

The obligation of Conversant to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

    the representations and warranties of Alliance Data and the Merger Subsidiary shall be true and correct both on and as of September 11, 2014 and at the time of the merger’s closing, subject to the materiality standards provided in the merger agreement;

 

 

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    each of Alliance Data and the Merger Subsidiary shall have performed in all material respects all covenants, obligations and other agreements required by the merger agreement to be performed by it on or prior to the effective time of the merger;

 

    since September 11, 2014, there shall not have been any fact, change, circumstance, occurrence, condition or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect (as such term is defined in the merger agreement and described in more detail under the heading “The Merger Agreement”) on Alliance Data; and

 

    Alliance Data shall have delivered to Conversant a certificate signed by an executive officer certifying to the effect that the foregoing conditions have been satisfied.

The obligation of Alliance Data to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

    the representations and warranties of Conversant shall be true and correct both on and as of September 11, 2014 and at the time of the merger’s closing, subject to the materiality standards provided in the merger agreement;

 

    Conversant shall have performed in all material respects all covenants, obligations and other agreements required by the merger agreement to be performed by it on or prior to the effective time of the merger;

 

    since September 11, 2014, there shall not have been any fact, change, circumstance, occurrence, condition or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect (as such term is defined in the merger agreement and described in more detail under the heading “The Merger Agreement”) on Conversant; and

 

    Conversant shall have delivered to Alliance Data a certificate signed by its chief executive officer or another senior officer certifying to the effect that the foregoing conditions have been satisfied.

The merger agreement provides that any or all of the additional conditions described above may be waived, in whole or in part, by Alliance Data or Conversant, to the extent legally allowed. Neither Alliance Data nor Conversant currently expects to waive any material condition to the closing of the merger.

Timing of the Merger (See page 83)

The merger is expected to be completed in the fourth quarter of 2014, subject to the satisfaction or waiver of the closing conditions.

No Solicitation of Other Offers; No Change of Board Recommendation (See page 94)

The merger agreement contains “no solicitation” provisions that, subject to certain exceptions, require Conversant to, and to cause each of its controlled affiliates to, and use its reasonable best efforts to cause each of its and its controlled affiliates’ representatives to:

 

    cease and cause to be terminated any discussions or negotiations with any persons (other than Alliance Data and its subsidiaries) that may be ongoing with respect to a company takeover proposal with respect to Conversant or any of its subsidiaries from any person other than Alliance Data and its subsidiaries, or a Company Takeover Proposal, and which is described in more detail under the heading “The Merger Agreement—‘No Solicitation’ Provisions;” or

 

 

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    not, directly or indirectly, (1) solicit, initiate, knowingly encourage or knowingly facilitate any inquiries regarding, or the making of any proposal that could reasonably be expected to lead to, a Company Takeover Proposal, (2) engage in, continue or otherwise participate in any discussions or negotiations regarding a Company Takeover Proposal, (3) approve, recommend or enter into, or propose to approve, recommend or enter into, any agreement (whether written or oral, binding or nonbinding) with respect to a Company Takeover Proposal, (4) take any action to make the provisions of any takeover statute inapplicable to the transactions contemplated by a Company Takeover Proposal, or (5) resolve, propose or agree to do any of the foregoing.

However, prior to the approval of the Merger Proposal by Conversant stockholders, if Conversant receives an unsolicited written Company Takeover Proposal that (i) Conversant’s board of directors determines in good faith to be bona fide, (ii) did not result from Conversant’s or its representatives breach or violation of, or failure to perform the “no solicitations” provisions, and (iii) Conversant’s board of directors determines in good faith constitutes or could reasonably be expected to lead to a Company Superior Proposal (as such term is defined in the merger agreement and described in more detail under the heading “The Merger Agreement”) and that the failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, then Conversant and its representatives may:

 

    furnish, pursuant to and in accordance with a confidentiality agreement in substantially the same form as the confidentiality agreement entered into between Alliance Data and Conversant, information with respect to Conversant and its subsidiaries to the person who made such Company Takeover Proposal;

 

    engage in discussions or negotiations regarding the Company Takeover Proposal; and

 

    grant a waiver or release to any person subject to a “standstill” agreement with Conversant to submit such a Company Takeover Proposal to Conversant’s board of directors.

Termination of the Merger Agreement (See page 97)

Either Alliance Data or Conversant may terminate the merger agreement at any time prior to the effective time of the merger if:

 

    the parties mutually agree in writing;

 

    the merger is not consummated by March 31, 2015;

 

    a governmental entity of competent jurisdiction issues a final and nonappealable order permanently restraining, enjoining or otherwise prohibiting the closing of the merger; or

 

    the requisite vote of Conversant stockholders in favor of the Merger Proposal is not obtained after the special meeting of Conversant stockholders (as it may be adjourned or postponed) has concluded.

Alliance Data may terminate the merger agreement if:

 

    (i) Conversant shall have failed to include its recommendation in favor of the Merger Proposal in this proxy statement/prospectus distributed to its stockholders, (ii) Conversant shall have approved, adopted or recommended to Conversant stockholders a Company Takeover Proposal, which is referred to herein as a Company Adverse Recommendation Change, (iii) a tender offer or exchange offer that constitutes a Company Takeover Proposal shall have been commenced by a person unaffiliated with Alliance Data and Conversant has not published, sent or given to its stockholders within ten business days a statement affirming its recommendation in favor of the Merger Proposal, (iv) Conversant or any of its representatives has materially breached or violated its covenants, obligations or agreements related to non-solicitation and requirements regarding this proxy statement/prospectus and calling of the special meeting of Conversant stockholders; or

 

 

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    Conversant has breached, violated or failed to perform any of its respective representations, warranties, covenants, obligations or other agreements (i) if such breach, violation or failure occurred or was continuing to occur at the time immediately prior to the closing of the merger and would result in a failure of a closing condition and (ii) which is either non-curable or is not cured by the earlier of March 31, 2015 and the date that is thirty days following written notice from Alliance Data to Conversant describing such breach, violation or failure in reasonable detail.

Conversant may terminate the merger agreement if:

 

    Alliance Data or the Merger Subsidiary has breached, violated or failed to perform any of their respective representations, warranties, covenants, obligations or other agreements (i) if such breach, violation or failure occurred or was continuing to occur at the time immediately prior to the closing of the merger and would result in a failure of a closing condition and (ii) which is either non-curable or is not cured by the earlier of March 31, 2015 and the date that is thirty days following written notice from Conversant to Alliance Data describing such breach, violation or failure in reasonable detail; or

 

    Conversant receives a Company Superior Proposal and follows the steps required to terminate the merger agreement described under “The Merger Agreement—Board Recommendation—Change in Recommendation or Termination of the Merger Agreement for a ‘Company Superior Proposal.’”

Termination Fee (See page 98)

In the merger agreement, Conversant has agreed to pay Alliance Data a termination fee equal to $65.0 million if the merger agreement is terminated:

 

    by Conversant if Conversant receives a Company Superior Proposal and follows the steps required to terminate the merger agreement described under “The Merger Agreement—Board Recommendation—Change in Recommendation or Termination of the Merger Agreement for a ‘Company Superior Proposal’”;

 

    by Alliance Data if (i) Conversant shall have failed to include its recommendation in favor of the Merger Proposal in this proxy statement/prospectus distributed to its stockholders, (ii) Conversant shall have effected a Company Adverse Recommendation Change, (iii) a tender offer or exchange offer that constitutes a Company Takeover Proposal shall have been commenced by a person unaffiliated with Alliance Data and Conversant shall not have published, sent or given to its stockholders within ten business days a statement affirming its recommendation in favor of the Merger Proposal or (iv) Conversant or its representatives shall have materially breached or violated its covenants, obligations or agreements related to non-solicitation and requirements regarding this proxy statement/prospectus and calling of the special meeting of Conversant stockholders; or

 

    after the occurrence of a Pre-Termination Takeover Proposal Event (as such term is defined in the merger agreement and described in more detail under the heading “The Merger Agreement”), if either Alliance Data or Conversant terminate for any of the following reasons and at any time on or prior to the twelve month anniversary of termination, and Conversant enters into a definitive agreement with respect to or consummates any transaction that constitutes a Company Takeover Proposal:

 

    if the merger has not been consummated by March 31, 2015;

 

    the requisite vote of Conversant stockholders in favor of the Merger Proposal shall not have been obtained after the special meeting of Conversant stockholders (as it may be adjourned or postponed) has concluded; or

 

 

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    if Conversant has breached, violated or failed to perform any of its respective representations, warranties, covenants, obligations or other agreements (i) if such breach, violation or failure occurred or was continuing to occur at the time immediately prior to the closing of the merger and would result in a failure of a closing condition and (ii) which is either non-curable or is not cured by the earlier of March 31, 2015 and the date that is thirty days following written notice from Alliance Data to Conversant describing such breach, violation or failure in reasonable detail.

This termination fee could discourage other companies from seeking to acquire or merge with Conversant.

Listing of Alliance Data Common Stock; Delisting and Deregistration of Conversant Common Stock (See page 76)

Prior to the closing of the merger, Alliance Data has agreed to use its reasonable best efforts to cause the shares of Alliance Data common stock to be issued in the merger to be approved for listing on the NYSE. This approval is a condition to both Conversant’s and Alliance Data’s obligation to complete the merger. If the merger is completed, Conversant common stock will cease to be listed on The NASDAQ Global Select Market, and its shares will be deregistered under the Exchange Act.

Comparison of Stockholders’ Rights (See page 122)

Conversant stockholders, whose rights are currently governed by Conversant’s second amended and restated certificate of incorporation and Conversant’s amended and restated bylaws, will become stockholders of Alliance Data and their rights will be governed by the second amended and restated certificate of incorporation of Alliance Data and the fourth amended and restated bylaws of Alliance Data. These differences are described in detail under “Comparison of Stockholders’ Rights.”

Dividends (See page 27)

Under the terms of the merger agreement, each of Alliance Data and Conversant is prohibited from paying dividends on its common stock and from repurchasing shares of its common stock during the pendency of the merger.

Litigation Related to the Merger (See page 76)

On September 12, 2014, a putative stockholder class action complaint, captioned Palkon v. Conversant, Inc., et al., No. 56-2014-00457860-CU-BT-VTA (Superior Court, Ventura County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Superior Court of the State of California in Ventura County. On October 7, 2014, the plaintiff in the Palkon action filed a request for voluntary dismissal. The court issued an order granting the request and dismissing the action on October 21, 2014. Additionally, on September 16, 2014, a second putative stockholder class action complaint, captioned Leinoff v. Conversant, Inc., et al., No. BC-557818 (Superior Court, Los Angeles County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Superior Court of the State of California in Los Angeles County. An amended complaint was filed in Leinoff on October 21, 2014. On September 19, 2014, a third putative stockholder class action complaint, captioned Blaze v. Conversant, Inc., et al., No. BC-558100 (Superior Court, Los Angeles County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. The plaintiff in the Los Angeles County Blaze action filed a request for voluntary dismissal on October 17, 2014. On September 26, 2014, a fourth putative class action stockholder complaint, captioned Feliciano v. Buzby, et al., C. A. No. 10174-VCN (Chancery Court, Delaware) was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Court of Chancery of the State of Delaware. An amended complaint was

 

 

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filed in Feliciano on October 9, 2014. On September 30, 2014, a fifth putative stockholder class action complaint, captioned Naclerio v. Conversant, Inc., et al., No. BC559187 (Superior Court, Los Angeles County) was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. On October 3, 2014, a sixth putative stockholder class action complaint, captioned Hoffman v. Conversant, Inc., et al., No. BC559660 (Superior Court, Los Angeles County) was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. On October 17, 2014, a seventh putative stockholder class action complaint, captioned Joyce v. Conversant, Inc., et al., C.A. No. 10254-VCN (Chancery Court, Delaware), was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary in the Court of Chancery of the State of Delaware. On October 22, 2014, the plaintiff in Joyce filed a motion to expedite proceedings, including expediting discovery. On October 17, 2014, an eighth putative stockholder class action complaint, captioned Blaze v. Conversant, Inc. et al., C.A. No. 10253-VCN (Chancery Court, Delaware), was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Court of Chancery of the State of Delaware.

Each lawsuit alleges that members of the Conversant board of directors breached their fiduciary duties in connection with the proposed sale of Conversant to Alliance Data. Each complaint also alleges that Conversant, Alliance Data and the Merger Subsidiary aided and abetted the alleged breach of fiduciary duty. The Delaware complaints and the amended complaint in Leinoff also include claims regarding alleged misrepresentations and omissions made in the Conversant’s preliminary proxy statement. The complaints seek, among other things, injunctive relief and other equitable relief, in addition to unspecified fees and costs. Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary believe these lawsuits are without merit and intend to defend against each of them vigorously. On October 30, 2014, an order was entered consolidating the Delaware actions into a consolidated action captioned In re Conversant, Inc. Stockholder Litigation, C.A. No. 10174-VCN (Chancery Court, Delaware), and appointing Plaintiffs’ co-lead counsel and liaison counsel for the consolidated action.

The Meeting

The Conversant Special Meeting (See page 102)

At the Conversant special meeting, Conversant stockholders will be asked to vote on the following proposals:

 

    to adopt the merger agreement;

 

    to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger—Golden Parachute Compensation;”

 

    to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals if there are insufficient votes at the time of such adjournment to approve such proposals; and

 

    to transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

Closing of the merger is conditioned on, among other things, the adoption by Conversant stockholders of the merger agreement.

 

 

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The board of directors of Conversant unanimously recommends that you vote (1) “FOR” the proposal to adopt the merger agreement, which is necessary to effect the merger, (2) “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and (3) “FOR” the proposal to adjourn the Conversant special meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals.

All Conversant stockholders of record at the close of business on the record date are entitled to vote at the special meeting of Conversant stockholders. As of the close of business on the record date, 66,857,176 shares of Conversant common stock were issued and outstanding.

If a quorum is present, the affirmative vote of a majority of the outstanding shares of Conversant common stock entitled to vote on the proposal at the special meeting is required to adopt the merger agreement. If a quorum is present, the affirmative vote of the holders of a majority of the shares entitled to vote at the special meeting and present in person or by proxy, is required to approve the proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Conversant’s named executive officers in connection with the merger. Whether or not a quorum is present, the affirmative vote of the holders of a majority of the shares entitled to vote at the special meeting and present in person or by proxy is required to adjourn the special meeting.

Voting by Conversant Directors and Executive Officers (See page 103)

Concurrently with the execution of the merger agreement, each of Conversant’s directors and executive officers executed a Voting Agreement with Alliance Data that requires, among other things and subject to the terms and conditions and exceptions contained in the Voting Agreement, such Conversant directors and executive officers to (i) vote in favor of (and to grant a proxy to Alliance Data, or one of Alliance Data’s designated representatives, to vote in favor of) adoption of the merger agreement, the merger and the other transactions contemplated thereby, (ii) vote against any Company Takeover Proposal (as defined in the merger agreement), or any proposal or transaction involving Conversant or amendments to organizational documents of Conversant that would reasonably be expected to materially impede, interfere with, delay or adversely affect the merger or the other transactions contemplated by the merger agreement or change the voting rights of any class of capital stock of Conversant and (iii) not transfer such directors’ or officers’ shares of Conversant common stock prior to the earliest to occur of certain events, including the closing of the merger or the termination of the merger agreement, subject to certain permitted transfers to permitted transferees who agree to become bound by the Voting Agreement. As of September 11, 2014, Conversant’s directors and executive officers beneficially owned shares of, or securities convertible into or exercisable for, Conversant common stock representing approximately 6.5% of the outstanding shares of Conversant common stock on a fully-diluted basis. As of the record date for the Conversant special meeting, Conversant’s directors and executive officers beneficially owned shares of, or securities convertible into or exercisable for, Conversant common stock representing approximately 6.5% of the outstanding shares of Conversant common stock on a fully-diluted basis. A copy of the full text of the Voting Agreement is attached as Annex B to this proxy statement/prospectus.

 

 

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SELECTED HISTORICAL FINANCIAL DATA OF ALLIANCE DATA

The following table sets forth Alliance Data’s selected historical consolidated financial and other data for the periods ended and as of the dates indicated. The income statement, cash flow and certain operating data for the fiscal years ended December 31, 2013, 2012 and 2011 and the balance sheet data as of December 31, 2013 and 2012 have been derived from Alliance Data’s audited consolidated financial statements incorporated by reference into this proxy statement/prospectus. The income statement, cash flow and certain operating data for the fiscal years ended December 31, 2010 and 2009 and the balance sheet data as of December 31, 2011, 2010 and 2009 have been derived from Alliance Data’s audited consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus. The income statement, cash flow and certain operating data for the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 have been derived from Alliance Data’s unaudited condensed consolidated financial statements incorporated by reference into this proxy statement/prospectus. The balance sheet data as of June 30, 2013 has been derived from Alliance Data’s unaudited condensed consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes contained in Alliance Data’s most recent Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the six months ended June 30, 2014, incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” and “Information Incorporated By Reference” beginning on page 135 of this proxy statement/prospectus.

 

    Years Ended December 31,     Six Months Ended
June 30,
 
    2013     2012     2011     2010     2009(1)     2014     2013  
    (In thousands, except per share amounts)  

Income statement data

             

Total revenue

  $ 4,319,063      $ 3,641,390      $ 3,173,287      $ 2,791,421      $ 1,964,341      $ 2,498,058      $ 2,081,529   

Cost of operations (exclusive of amortization and depreciation disclosed separately below)(2)

    2,549,159        2,106,612        1,811,882        1,545,380        1,354,138        1,555,795        1,239,707   

Provision for loan loss

    345,758        285,479        300,316        387,822        —          167,234        124,444   

General and administrative(2)

    109,115        108,059        95,256        85,773        99,823        62,329        50,547   

Depreciation and other amortization

    84,291        73,802        70,427        67,806        62,196        51,485        40,006   

Amortization of purchased intangibles

    131,828        93,074        82,726        75,420        63,090        96,883        66,420   

Gain on acquisition of a business

    —          —          —          —          (21,227     —          —     

Merger reimbursements

    —          —          —          —          (1,436     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    3,220,151        2,667,026        2,360,607        2,162,201        1,556,584        1,933,726        1,521,124   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    1,098,912        974,364        812,680        629,220        407,757        564,332        560,405   

Interest expense, net

    305,500        291,460        298,585        318,330        144,811        130,679        166,010   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    793,412        682,904        514,095        310,890        262,946        433,653        394,395   

Provision for income taxes

    297,242        260,648        198,809        115,252        86,227        158,717        148,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    496,170        422,256        315,286        195,638        176,719        274,936        245,419   

Loss from discontinued operations, net of taxes

    —          —          —          (1,901     (32,985     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 496,170      $ 422,256      $ 315,286      $ 193,737      $ 143,734      $ 274,936      $ 245,419   

Less: Net income attributable to non-controlling interest

    —          —          —          —          —          97        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

  $ 496,170      $ 422,256      $ 315,286      $ 193,737      $ 143,734      $ 274,839      $ 245,419   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations per share—basic

  $ 10.09      $ 8.44      $ 6.22      $ 3.72      $ 3.17      $ 5.13      $ 4.96   

Income from continuing operations per share—diluted

  $ 7.42      $ 6.58      $ 5.45      $ 3.51      $ 3.06      $ 4.27      $ 3.62   

Net income per share attributable to common stockholders—basic

  $ 10.09      $ 8.44      $ 6.22      $ 3.69      $ 2.58      $ 5.13      $ 4.96   

Net income per share attributable to common stockholders—diluted

  $ 7.42      $ 6.58      $ 5.45      $ 3.48      $ 2.49      $ 4.27      $ 3.62   

Weighted average shares—basic

    49,190        50,008        50,687        52,534        55,765        53,600        49,444   

Weighted average shares—diluted

    66,866        64,143        57,804        55,710        57,706        64,354        67,746   

 

 

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    Years Ended December 31,     Six Months Ended
June 30,
 
    2013     2012     2011     2010     2009(1)     2014     2013  
    (In thousands)  

Adjusted EBITDA

             

Adjusted EBITDA(3)

  $ 1,374,214      $ 1,191,737      $ 1,009,319      $ 822,540      $ 590,077      $ 744,197      $ 694,846   

Adjusted EBITDA, net(3)

  $ 1,249,777      $ 1,073,748      $ 859,530      $ 638,000      $ 561,794      $ 666,521      $ 631,658   

Other financial data

             

Cash flows from operating activities

  $ 1,003,492      $ 1,134,190      $ 1,011,347      $ 902,709      $ 358,414      $ 587,798      $ 530,465   

Cash flows from investing activities

  $ (1,619,416   $ (2,671,350   $ (1,040,710   $ (340,784   $ (888,022   $ (652,142   $ (331,726

Cash flows from financing activities

  $ 704,152      $ 2,209,019      $ 109,250      $ (715,675   $ 570,189      $ (273,039   $ (334,305

Segment Operating data

             

Private label statements generated

    192,508        166,091        142,064        142,379        130,176        102,129        93,929   

Credit sales

  $ 15,252,299      $ 12,523,632      $ 9,636,053      $ 8,773,436      $ 7,968,125      $ 8,111,813      $ 6,787,426   

Average credit card and loan receivables

  $ 7,212,678      $ 5,927,562      $ 4,962,503      $ 5,025,915      $ 4,359,625      $ 8,096,612      $ 6,964,255   

AIR MILES reward miles issued

    5,420,723        5,222,887        4,940,364        4,584,384        4,545,774        2,393,558        2,443,380   

AIR MILES reward miles redeemed

    4,017,494        4,040,876        3,633,921        3,634,821        3,326,307        2,095,078        2,038,292   

 

    As of December 31,     As of June 30,  
    2013     2012     2011     2010     2009(1)     2014     2013  
    (In thousands)  

Balance sheet data

             

Credit card and loan receivables, net

  $ 8,069,713      $ 6,967,674      $ 5,197,690      $ 4,838,354      $ 616,298      $ 8,050,314      $ 6,782,194   

Redemption settlement assets, restricted

    510,349        492,690        515,838        472,428        574,004        565,158        509,230   

Total assets

    13,244,257        12,000,139        8,980,249        8,272,152        5,225,667        14,214,898        11,867,312   

Deferred revenue

    1,137,186        1,249,061        1,226,436        1,221,242        1,146,146        1,089,829        1,142,127   

Deposits

    2,816,361        2,228,411        1,353,775        859,100        1,465,000        3,010,025        2,255,366   

Non-recourse borrowings of consolidated securitization entities

    4,591,916        4,130,970        3,260,287        3,660,142        —          4,311,916        4,011,916   

Long-term and other debt, including current maturities

    2,800,281        2,854,839        2,183,474        1,869,772        1,782,352        2,961,413        2,856,044   

Total liabilities

    12,388,496        11,471,652        8,804,283        8,249,058        4,952,891        12,924,890        11,286,464   

Redeemable non-controlling interest

    —          —          —          —          —          342,687        —     

Total stockholders’ equity

    855,761        528,487        175,966        23,094        272,776        947,321        580,848   

 

(1) On January 1, 2010, Alliance Data adopted guidance codified in Accounting Standards Codification, or ASC, 810, “Consolidation,” and ASC 860, “Transfers and Servicing,” which resulted in the consolidation of the credit card securitization trusts on a prospective basis. Therefore, the selected financial data for the year ended December 31, 2009 does not reflect this change in accounting principle.

 

 

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(2) Included in cost of operations is stock compensation expense of $40.3 million, $32.7 million, $25.8 million, $27.6 million and $29.3 million for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively, and $22.2 million and $19.5 million for the six months ended June 30, 2014 and 2013, respectively. Included in general and administrative is stock compensation expense of $18.9 million, $17.8 million, $17.7 million, $22.5 million and $24.3 million for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively, and $9.3 million and $8.5 million for the six months ended June 30, 2014 and 2013, respectively.
(3) Adjusted EBITDA is a non-GAAP financial measure equal to income from continuing operations, the most directly comparable financial measure based on accounting principles generally accepted in the United States of America, or GAAP, plus stock compensation expense, provision for income taxes, interest expense, net, merger and other costs, depreciation and other amortization and amortization of purchased intangibles. Adjusted EBITDA, net is also a non-GAAP financial measure equal to adjusted EBITDA less securitization funding costs, interest expense on deposits and adjusted EBITDA attributable to the non-controlling interest.

Alliance Data uses adjusted EBITDA and adjusted EBITDA, net as an integral part of our internal reporting to measure the performance of its reportable segments and to evaluate the performance of its senior management. Adjusted EBITDA and adjusted EBITDA, net are each considered an important indicator of the operational strength of its businesses. Adjusted EBITDA eliminates the uneven effect across all business segments of considerable amounts of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets that were recognized in business combinations. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in Alliance Data’s businesses. Management evaluates the costs of such tangible and intangible assets, such as capital expenditures, investment spending and return on capital and therefore the effects are excluded from adjusted EBITDA. Adjusted EBITDA also eliminates the non-cash effect of stock compensation expense. Stock compensation expense is not included in the measurement of segment adjusted EBITDA provided to the chief operating decision maker for purposes of assessing segment performance and decision making with respect to resource allocations. In addition to the above, adjusted EBITDA, net also excludes the interest associated with financing our credit card and loan receivables, which represents securitization funding costs and interest on deposits, and the percentage of the adjusted EBITDA attributable to the non-controlling interest. Alliance Data believes that adjusted EBITDA and adjusted EBITDA, net provide useful information to our investors regarding our performance and overall results of operations. Adjusted EBITDA and adjusted EBITDA, net are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, either operating income or net income as indicators of operating performance or to cash flows from operating activities as a measure of liquidity. In addition, adjusted EBITDA and adjusted EBITDA, net are not intended to represent funds available for dividends, reinvestment or other discretionary uses, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

 

 

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The adjusted EBITDA and adjusted EBITDA, net measures presented by Alliance Data herein may not be comparable to similarly titled measures presented by other companies, and may not be identical to corresponding measures used in its various agreements.

 

    Years Ended December 31,     Six Months Ended
June 30,
 
    2013     2012     2011     2010     2009     2014     2013  
    (In thousands)  

Income from continuing operations

  $ 496,170      $ 422,256      $ 315,286      $ 195,638      $ 176,719      $ 274,936      $ 245,419   

Stock compensation expense

    59,183        50,497        43,486        50,094        53,612        31,497        28,015   

Provision for income taxes

    297,242        260,648        198,809        115,252        86,227        158,717        148,976   

Interest expense, net

    305,500        291,460        298,585        318,330        144,811        130,679        166,010   

Merger and other costs(1)

    —          —          —          —          3,422        —          —     

Depreciation and other amortization

    84,291        73,802        70,427        67,806        62,196        51,485        40,006   

Amortization of purchased intangibles

    131,828        93,074        82,726        75,420        63,090        96,883        66,420   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 1,374,214      $ 1,191,737      $ 1,009,319      $ 822,540      $ 590,077      $ 744,197      $ 694,846   

Less Securitization funding costs

    95,326        92,808        126,711        155,084        —          45,211        49,179   

Less Interest expense on deposits

    29,111        25,181        23,078        29,456        28,283        16,462        14,009   

Less Adjusted EBITDA attributable to non-controlling interest

    —          —          —          —          —          16,003        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA, net

  $ 1,249,777      $ 1,073,748      $ 859,530      $ 638,000      $ 561,794      $ 666,521      $ 631,658   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Represents investment banking, legal and accounting costs directly associated with the proposed merger with an affiliate of The Blackstone Group. Other costs represent compensation charges related to the departure of certain employees resulting from cost saving initiatives and other non-routine costs associated with the disposition of certain businesses.

 

 

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SELECTED HISTORICAL FINANCIAL DATA OF CONVERSANT

The following table sets forth Conversant’s summary selected historical consolidated financial and other data for the periods ended and as of the dates indicated. The consolidated statements of operations for the fiscal years ended December 31, 2013, 2012 and 2011 and the balance sheet data as of December 31, 2013 and 2012 have been derived from Conversant’s audited consolidated financial statements incorporated by reference into this proxy statement/prospectus. The consolidated statements of operations data for the fiscal years ended December 31, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011, 2010 and 2009 have been derived from Conversant’s unaudited consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus and as recast for discontinued operations and the reclassification of certain expenses. The consolidated statement of operations for the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 have been derived from Conversant’s unaudited condensed consolidated financial statements incorporated by reference into this proxy statement/prospectus. The balance sheet data as of June 30, 2013 has been derived from Conversant’s unaudited condensed consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes contained in Conversant’s most recent Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the six months ended June 30, 2014, incorporated by reference into this proxy statement/prospectus, and unaudited pro forma condensed combined financial information and related notes included elsewhere in this proxy statement/prospectus.

 

 

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CONSOLIDATED STATEMENT OF OPERATIONS DATA(1)

 

    For the Year Ended December 31,     For the Six Months
Ended June 30,
 
    2013     2012     2011     2010     2009     2014     2013  
    (in thousands, except per share data)  

Revenue

  $ 573,121      $ 539,820      $ 400,334      $ 292,907      $ 273,785      $ 283,293      $ 262,577   

Cost of revenue(3)

    183,282        177,562        134,366        93,769        89,548        94,555        84,213   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit(3)

    389,839        362,258        265,968        199,138        184,237        188,738        178,364   

Operating expenses:

             

Sales and marketing(2)

    88,104        79,944        59,835        41,521        46,586        52,457        42,443   

General and administrative(2)

    63,143        73,791        52,455        46,050        51,531        33,488        30,488   

Technology(2)

    55,602        54,838        38,167        25,737        18,315        33,137        27,582   

Amortization of acquired intangible assets(3)

    15,208        19,755        11,206        5,096        5,186        8,144        7,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses(3)

    222,057        228,328        161,663        118,404        121,618        127,226        107,613   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    167,782        133,930        104,305        80,734        62,619        61,512        70,751   

Interest and other (expense) income, net

    (25,180     747        3,118        2,240        239        264        (23,870
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    142,602        134,677        107,423        82,974        62,858        61,776        46,881   

Income tax expense

    52,160        56,073        22,663        9,075        13,348        24,697        17,465   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    90,442        78,604        84,760        73,899        49,510        37,079        29,416   

Discontinued operations:

             

Income from discontinued operations, net of tax

    9,151        22,132        16,370        6,571        19,106        155        6,456   

Gain on disposition, net of tax

    2,286        980        —          10,040        —          34,895        2,286   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from discontinued operations

    11,437        23,112        16,370        16,611        19,106        35,050        8,742   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 101,879      $ 101,716      $ 101,130      $ 90,510      $ 68,616      $ 72,129      $ 38,158   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share – basic:

             

Continuing operations

  $ 1.25      $ 1.02      $ 1.06      $ 0.91      $ 0.57      $ 0.56      $ 0.39   

Discontinued operations

  $ 0.16      $ 0.30      $ 0.20      $ 0.20      $ 0.22      $ 0.53      $ 0.12   

Net income

  $ 1.41      $ 1.32      $ 1.26      $ 1.11      $ 0.79      $ 1.09      $ 0.50   

Net income per common share – diluted:

             

Continuing operations

  $ 1.22      $ 1.00      $ 1.04      $ 0.90      $ 0.57      $ 0.55      $ 0.38   

Discontinued operations

  $ 0.15      $ 0.29      $ 0.20      $ 0.20      $ 0.22      $ 0.52      $ 0.11   

Net income

  $ 1.37      $ 1.29      $ 1.24      $ 1.10      $ 0.79      $ 1.06      $ 0.49   

Weighted-average shares used to calculate basic net income per common share

    72,376        77,342        80,323        81,615        86,716        66,450        75,590   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to calculate diluted net income per common share

    74,122        78,898        81,489        82,334        87,210        67,960        77,490   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The amounts included in the Consolidated Statement of Operations Data for the years presented reflect the following acquisitions from their effective dates:

 

Acquisitions

   Date  

Greystripe

     April 2011   

Dotomi

     August 2011   

The results of operations of the following dispositions and disposal groups are reflected in discontinued operations for all periods:

 

Dispositions

   Date  

Web Marketing Holdings, LLC, or Web Clients

     February 2010   

Search 123

     September 2012   

Owned & Operated Websites segment

     January 2014   

 

 

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(2) Includes stock-based compensation for the following periods (in thousands):

 

     For the Year Ended December 31,      For the Six Months Ended
June 30,
 
     2013      2012      2011      2010      2009      2014      2013  

Sales and marketing

   $ 5,093       $ 4,885       $ 3,298       $ 1,235       $ 1,849       $ 2,532       $ 2,547   

General and administrative

     9,299         10,840         7,390         5,577         5,892         4,390         4,558   

Technology

     4,578         5,108         2,706         752         888         2,655         2,245   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,970       $ 20,833       $ 13,394       $ 7,564       $ 8,629       $ 9,577       $ 9,350   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) Includes the reclassification of $3,712 of amortization of acquired developed technology from operating expenses to cost of revenue for the year ended December 31, 2011.

Consolidated Balance Sheet Data

 

     As of December 31,      As of June 30,  
     2013      2012      2011      2010      2009      2014      2013  
     (in thousands)  

Cash, cash equivalents and marketable securities

   $ 81,319       $ 136,638       $ 116,676       $ 197,317       $ 180,523       $ 83,574       $ 127,068   

Working capital

   $ 143,194       $ 168,860       $ 135,317       $ 199,267       $ 160,531       $ 134,668       $ 174,899   

Total assets

   $ 817,775       $ 899,696       $ 880,711       $ 613,567       $ 566,562       $ 736,190       $ 840,215   

Total non-current liabilities

   $ 174,703       $ 166,590       $ 181,702       $ 37,668       $ 61,669       $ 104,935       $ 128,315   

Total stockholders’ equity

   $ 504,897       $ 590,705       $ 563,393       $ 472,641       $ 406,489       $ 509,590       $ 592,820   

Adjusted EBITDA as a Non-GAAP Performance Measure

In evaluating its business, Conversant considers earnings from continuing operations before interest, income taxes, depreciation, amortization, stock-based compensation and acquisition related costs, which it refers to as Adjusted EBITDA, a non-GAAP financial measure, as a key indicator of financial operating performance and as a measure of the ability to generate cash for operational activities and future capital expenditures. Conversant uses Adjusted EBITDA in evaluating the overall performance of its business operations. Conversant believes that this measure may also be useful to investors because it eliminates the effects of period-to-period changes in income from interest on our cash equivalents, note receivable and borrowings and the costs associated with income tax expense, capital investments, acquisitions and stock-based compensation, which are not directly attributable to the underlying performance of Conversant’s continuing business operations. Investors should not consider this measure in isolation or as a substitute for income from operations, or cash flow from operations determined under GAAP or any other measure for determining operating performance that is calculated in accordance with GAAP. In addition, because Adjusted EBITDA is a non-GAAP measure, it may not necessarily be comparable to similarly titled measures employed by other companies.

 

 

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The following is a reconciliation of Conversant’s net income from continuing operations to Adjusted EBITDA:

 

     For the Year Ended December 31,     For the Six Months Ended
June 30,
 
     2013      2012     2011     2010     2009     2014     2013  
     (in thousands)  

Net income from continuing operations

   $ 90,442       $ 78,604      $ 84,760      $ 73,899      $ 49,510      $ 37,079      $ 29,416   

Interest and other expense (income), net

     25,180         (747     (3,118     (2,240     (239     (264     23,870   

Income tax expense

     52,160         56,073        22,663        9,075        13,348        24,697        17,465   

Amortization of acquired developed technology included in cost of revenue

     7,943         7,976        3,714        —          —          4,787        3,971   

Amortization of acquired intangible assets included in operating expenses

     15,208         19,755        11,206        5,096        5,186        8,144        7,100   

Depreciation and leasehold amortization

     12,263         10,399        6,312        5,030        5,682        6,272        6,008   

Stock-based compensation

     18,970         20,833        13,394        7,564        8,629        9,577        9,350   

Acquisition related costs

     —           —          412        —          —          —          —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 222,166       $ 192,893      $ 139,343      $ 98,424      $ 82,116      $ 90,292      $ 97,180   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ALLIANCE DATA AND CONVERSANT

The following selected unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the merger. The unaudited pro forma condensed combined income statement information for the six months ended June 30, 2014 and the year ended December 31, 2013 gives effect to the merger as if it occurred on January 1, 2013. The unaudited pro forma condensed combined balance sheet information gives effect to the merger as if it occurred on June 30, 2014.

This unaudited pro forma condensed combined financial information is for informational purposes only. It does not purport to indicate the results that would actually have been obtained had the merger been completed on the assumed date or for the periods presented, or which may be realized in the future. A final determination of the fair value of Conversant’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Conversant that exist as of the date of closing of the merger and, therefore, cannot be made prior to that date. Additionally, the value of the portion of the merger consideration to be paid in shares of Alliance Data common stock will be determined based on the trading price of Alliance Data common stock at the time of the closing of the merger.

The selected unaudited pro forma condensed combined financial information (i) has been derived from and should be read in conjunction with the “Unaudited Pro Forma Condensed Combined Financial Statements” and the related notes beginning on page 107 of this filing and (ii) should be read in conjunction with the historical consolidated financial statements of Alliance Data and Conversant incorporated by reference into this proxy statement/prospectus.

 

     Six Months Ended
June 30, 2014
     Year Ended
December 31, 2013
 
     (In thousands, except per share amounts)  

Pro Forma Income Statement Information

     

Revenue

   $ 2,781,351       $ 4,892,184   

Operating income

     553,911         1,120,119   

Income from continuing operations

     251,561         464,083   

Income from continuing operations attributable to common stockholders

     251,464         464,083   

Income from continuing operations attributable to common stockholders per share—basic

   $ 4.32       $ 8.62   

Income from continuing operations attributable to common stockholders per share—diluted

   $ 3.65       $ 6.49   

 

     As of June 30, 2014  
     (In thousands)  

Pro Forma Balance Sheet Information

  

Total current assets

   $ 10,534,122   

Goodwill

     4,015,629   

Total assets

     17,069,186   

Total debt, including current portion

     11,450,073   

Total stockholders’ equity

     2,086,433   

 

 

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UNAUDITED COMPARATIVE PER SHARE DATA

Presented below are Alliance Data’s and Conversant’s historical per share data for the six months ended June 30, 2014 and the year ended December 31, 2013 and unaudited pro forma combined per share data for the six months ended June 30, 2014 and the year ended December 31, 2013. This information should be read together with the consolidated financial statements and related notes of Alliance Data and Conversant that are incorporated by reference in this proxy statement/prospectus and with the unaudited pro forma condensed combined financial information included under “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 107. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company.

The historical book value per share is computed by dividing total stockholders’ equity by the number of shares of common stock outstanding at the end of the period. The pro forma income per share of the combined company is computed by dividing the pro forma income by the pro forma weighted average number of shares outstanding. The pro forma book value per share of the combined company is computed by dividing total pro forma stockholders’ equity by the pro forma number of shares of common stock outstanding at the end of the period. The Conversant unaudited pro forma equivalent per share financial information is computed by multiplying the Alliance Data unaudited pro forma combined per share amounts by the exchange ratio (0.07037 of a share of Alliance Data common stock for each share of Conversant common stock), and does not reflect the estimated $17.54 cash payment (based on the closing price of Alliance Data common stock on September 24, 2014) by Alliance Data for each share of Conversant common stock at the time of the merger. Book value per share amounts are not calculated for December 31, 2013 on a pro forma basis as purchase accounting adjustments in the unaudited pro forma statements have been determined only as of June 30, 2014.

 

     Six Months Ended
June 30, 2014
     Year Ended
December 31, 2013
 

Alliance Data

     

Income from continuing operations attributable to common stockholders per common share—basic:

     

Historical

   $ 5.13       $ 10.09   

Pro forma

   $ 4.32       $ 8.62   

Income from continuing operations attributable to common stockholders per common share—diluted:

     

Historical

   $ 4.27       $ 7.42   

Pro forma

   $ 3.65       $ 6.49   

Book value per common share:

     

Historical

   $ 17.53         n/a   

Pro forma

   $ 35.57         n/a   

Conversant

     

Income from continuing operations attributable to common stockholders per common share—basic:

     

Historical

   $ 0.56       $ 1.25   

Equivalent pro forma

   $ 0.30       $ 0.61   

Income from continuing operations attributable to common stockholders per common share—diluted:

     

Historical

   $ 0.55       $ 1.22   

Equivalent pro forma

   $ 0.26       $ 0.46   

Book value per common share:

     

Historical

   $ 7.90         n/a   

Equivalent pro forma

   $ 2.50         n/a   

 

 

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MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS

Market Prices

The tables below set forth, for the fiscal quarters indicated, the intraday high and low sales prices per share of Alliance Data common stock and Conversant common stock, which trade on The New York Stock Exchange under the symbol “ADS” and on The NASDAQ Global Select Market under the symbol “CNVR,” respectively.

 

     Alliance Data
Common Stock
 
     High      Low  

Fiscal Year 2012

     

First Quarter

   $ 127.55       $ 100.42   

Second Quarter

     135.49         119.56   

Third Quarter

     144.34         123.11   

Fourth Quarter

     148.41         135.91   

Fiscal Year 2013

     

First Quarter

     162.07         146.39   

Second Quarter

     185.32         152.80   

Third Quarter

     220.02         171.30   

Fourth Quarter

     264.31         209.71   

Fiscal Year 2014

     

First Quarter

     300.49         230.53   

Second Quarter

     284.40         230.79   

Third Quarter

     288.67         239.83   

Fourth Quarter (through October 30, 2014)

     283.27         230.54   
     Conversant
Common Stock
 
     High      Low  

Fiscal Year 2012

     

First Quarter

   $ 21.29       $ 16.20   

Second Quarter

     21.60         14.10   

Third Quarter

     17.55         15.31   

Fourth Quarter

     19.81         16.48   

Fiscal Year 2013

     

First Quarter

     31.00         19.23   

Second Quarter

     32.25         23.31   

Third Quarter

     26.50         20.31   

Fourth Quarter

     23.80         18.62   

Fiscal Year 2014

     

First Quarter

     28.74         20.52   

Second Quarter

     28.79         22.21   

Third Quarter

     35.17         23.35   

Fourth Quarter (through October 30, 2014)

     35.42         33.24   

On October 30, 2014, the latest practicable date before the date of this proxy statement/prospectus, the last sales price per share of Alliance Data common stock was $282.97 and the last sales price per share of Conversant common stock was $35.17, on the NYSE and The NASDAQ Global Select Market, respectively.

On October 1, 2014, Alliance Data had 29 holders of record of its common stock and Conversant had 377 holders of record of its common stock. This does not include holdings in street or nominee names.

 

 

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Recent Prices

The following table sets forth the closing prices per share of Alliance Data common stock and Conversant common stock as reported on the NYSE and The NASDAQ Global Select Market, respectively, on September 11, 2014, the last trading day before the public announcement of the merger agreement, and October 30, 2014, the latest practicable date before the date of this proxy statement/prospectus. The table also presents the equivalent value of the merger consideration per share of Conversant common stock on those dates. The equivalent value per share on September 11, 2014 is equal to (i) the 15-day volume weighted average stock price of Alliance Data common stock, calculated as if September 11, 2014 was the closing date and September 9, 2014 was the second business date prior to the closing, multiplied by the exchange ratio of 0.07037, plus (ii) the cash merger consideration of $16.60 (which is an amount in cash such that the total consideration equals $35.00). The equivalent value per share on October 30, 2014 is equal to (i) the 15-day volume weighted average stock price of Alliance Data common stock, calculated as if October 30, 2014 was the closing date and October 28, 2014 was the second business day prior to the closing, multiplied by the exchange ratio of 0.07037, plus (ii) the cash merger consideration of $17.07 (which is an amount in cash such that the total consideration equals $35.00). The equivalent value per share on September 11, 2014 and October 30, 2014 assumes that each Conversant stockholder receives the Base Consideration and does not make a Cash Election or a Stock Election, as described above under the heading “The Merger—Consideration to be Received in the Merger.”

 

     Alliance Data
Closing Price
     Conversant
Closing Price
     Equivalent
Value Per Share
 

September 11, 2014

   $ 252.87       $ 26.71       $ 35.00   

October 30, 2014

   $ 282.97      $ 35.17      $ 35.00  

Dividends and Other Distributions

Alliance Data has never declared or paid any cash dividends on its common stock, and it does not anticipate paying any cash dividends on its common stock in the foreseeable future. It currently intends to retain all available funds and future earnings, if any, for use in the operation and the expansion of its business. Any future determination to pay cash dividends on Alliance Data common stock will be at the discretion of its board of directors and will be dependent upon Alliance Data’s financial condition, operating results, capital requirements and other factors that the Alliance Data board deems relevant. In addition, under the terms of Alliance Data’s credit agreement, Alliance Data is restricted in the amount of any cash dividends or return of capital, other distribution, payment or delivery of property or cash to its common stockholders.

Conversant has not declared or paid dividends on its capital stock since its inception and does not have immediate plans to begin paying a cash dividend.

Following the proposed merger, the board of directors of Alliance Data will determine its policy regarding the payment of dividends, subject to any restrictions contained in Alliance Data’s credit facilities or any other contract then in existence, but it is expected that no dividends will be paid in the foreseeable future.

Under the terms of the merger agreement, each of Alliance Data and Conversant is prohibited, without the consent of the other party, from paying dividends on its common stock and from repurchasing shares of its common stock during the pendency of the merger.

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this proxy statement/prospectus, including financial estimates, projections about the industries and markets in which Alliance Data and Conversant operate, and statements as to the expected timing, completion and effects of the proposed merger between Alliance Data and Conversant, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “predict,” “project,” “would” and similar expressions as they relate to each company or their respective management teams. These estimates and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected in or suggested by such statements. Such estimates and statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company’s plans, objectives, expectations (financial or otherwise) and intentions, the estimated timetable for completing the transaction and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of Alliance Data and/or Conversant and are subject to significant risks and uncertainties outside of their control.

Risks and uncertainties related to the proposed merger include, among others:

 

    the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

 

    the risk that Conversant stockholders may not adopt the merger agreement;

 

    the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated;

 

    uncertainties as to the timing of the merger;

 

    competitive responses to the proposed merger;

 

    response by activist stockholders to the merger;

 

    risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner;

 

    unexpected costs, charges or expenses resulting from the merger;

 

    litigation relating to the merger;

 

    the outcome of pending litigation;

 

    risks related to the disruption of management time from ongoing business operations due to the proposed merger;

 

    failure to realize the benefits expected from the proposed merger;

 

    changes in general economic and/or industry-specific conditions; and

 

    the effect of the announcement of the proposed merger on the ability of Alliance Data and Conversant to retain customers and retain and hire key personnel and maintain relationships with their suppliers or service providers, and on their operating results and businesses generally.

Further information regarding factors affecting future results of Alliance Data and Conversant is included in their respective Annual Reports filed on Form 10-K for the year ended December 31, 2013, Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2014, and other documents that Alliance Data and Conversant file with the SEC, in each case incorporated by reference herein.

Neither Alliance Data nor Conversant is under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as required by law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus.

 

 

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RISK FACTORS

In addition to the other information included in and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” Conversant stockholders should carefully consider the following risk factors before deciding whether to vote for approval of the Merger Proposal. In addition, you should read and consider the risks associated with each of the businesses of Alliance Data and Conversant because these risks will also affect the combined company. These risks can be found in Alliance Data’s and Conversant’s Annual Reports on Form 10-K for the year ended December 31, 2013, their subsequent reports on Form 10-Q and other documents they file with the SEC, in each case incorporated by reference into this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” and “Information Incorporated by Reference.”

Risk Factors Relating to the Merger

The merger may not be completed on a timely basis or at all. The failure to complete the merger would eliminate, or any delay in the closing of the merger may significantly reduce, the benefits expected to be obtained from the merger and could adversely affect the market price of Alliance Data or Conversant common stock or their future business and financial results.

The merger is subject to a number of conditions, including, without limitation, the approval of Conversant’s stockholders, the receipt of certain governmental authorizations, consents, orders or other approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act (which waiting period was terminated on October 3, 2014), and authorization of the German Federal Cartel Office (which authorization was received on October 15, 2014), the approval of the listing on the NYSE of the shares of Alliance Data common stock to be issued in the merger, the declaration of the effectiveness of the Form S-4 to which this proxy statement/prospectus relates by the SEC under the Securities Act and the receipt of any other consents or approvals of any governmental entity required to be obtained in connection with the merger, each of which is beyond the control of Alliance Data and Conversant and could prevent, delay or otherwise materially and adversely affect closing of the merger. See “The Merger Agreement—Conditions to Closing of the Merger.” Neither Alliance Data nor Conversant can predict whether and when these other conditions will be satisfied. In addition, both Alliance Data and Conversant have the ability to terminate the merger agreement under certain circumstances.

Failure to complete the merger would prevent Alliance Data and Conversant from realizing the anticipated benefits of the merger. Each company would also remain liable for significant transaction costs, including legal, accounting and financial advisory fees, and Conversant could become liable to Alliance Data if the merger agreement is terminated under certain circumstances for a termination fee equal to $65.0 million. Any delay in completing the merger may significantly reduce the synergies and other benefits that Alliance Data and Conversant expect to achieve if they successfully complete the merger within the expected timeframe and integrate their respective businesses.

In addition, the market price of each company’s common stock may reflect various market assumptions as to whether and when the merger will be completed. Consequently, the completion of, the failure to complete, or any delay in the closing of the merger could result in a significant change in the market price of Alliance Data’s or Conversant’s common stock.

The value of the merger consideration to be received by Conversant stockholders may fluctuate in certain circumstances based on the market price of Alliance Data common stock. Conversant stockholders cannot be sure of the value of the merger consideration that will be paid to Conversant stockholders in the merger.

 

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If the merger is completed, each outstanding share of Conversant common stock eligible to receive the merger consideration will be exchanged for consideration consisting of (i) 0.07037 of a share of Alliance Data common stock and (ii) an amount in cash (based on the 15-day volume weighted average price of Alliance Data common stock as of the close of business on the second business day prior to closing (which we refer to in this proxy statement/prospectus as the Parent Closing Trading Price)), such that the total consideration per share equals $35.00 (which we refer to in this proxy statement/prospectus as the Base Consideration), subject to the limitations and adjustments described elsewhere in this proxy statement/prospectus. Conversant stockholders will have the right to make a Cash Election or a Stock Election as described under “The Merger Agreement—Consideration to be Received in the Merger.”

The exchange ratio of 0.07037 shares of Alliance Data common stock per share of Conversant common stock is fixed, and the final amount of cash consideration payable per eligible share of Conversant common stock will be determined based on the Parent Closing Trading Price. The cash portion of the Base Consideration will decrease as the Parent Closing Trading Price increases, and, conversely, the cash portion of the Base Consideration will increase as the Parent Closing Trading Price decreases. However, the maximum amount of cash Alliance Data will pay per share of Conversant common stock pursuant to the Base Consideration will equal $18.62, and the minimum amount of cash Alliance Data will pay per share of Conversant common stock pursuant to the Base Consideration will equal $14.98 (which we refer to in this proxy statement/prospectus as the collar). In the event that the maximum or minimum cash per share amount is reached, the amount of cash payable per share will be fixed at $18.62 or $14.98, as applicable. The value of the Base Consideration, which includes both the Per Share Stock Consideration and the Per Share Cash Consideration, will fluctuate below or above $35.00, respectively, based on the Parent Closing Trading Price as illustrated in the table included under the heading “The Merger—Consideration to be Received in the Merger.” As a result of the collar, Conversant stockholders cannot be sure of the value of the merger consideration that will be paid in the merger, to the extent that the Parent Closing Trading Price is below $232.75 or above $284.48, as illustrated in the table included under the heading “The Merger—Consideration to be Received in the Merger.”

Conversant stockholders may receive a form of consideration different from what they elect.

If you are a Conversant stockholder and you elect to receive the Base Consideration or you do not make an election, you will receive the Base Consideration, subject to the payment of cash for any fractional shares of Alliance Data common stock you would be entitled to receive. If you make a Stock Election or a Cash Election, then you are not guaranteed to receive the form of consideration you elect to receive. The aggregate amount of cash and shares of Alliance Data common stock payable by Alliance Data in the merger will not be more than the aggregate amount of cash and shares of Alliance Data common stock that would have otherwise been payable by Alliance Data if all Conversant stockholders were to receive the Base Consideration. To the extent there is not enough cash or shares of Alliance Data common stock to pay pursuant to a Cash Election or a Stock Election, the consideration payable on each such share of Conversant common stock will be adjusted on a pro rata basis (and with the difference between such pro rated amount being made up in the remaining Alliance Data common stock or cash, as applicable) among all shares with respect to which either a Cash Election or Stock Election has been made. As a result, if you make a Stock Election or a Cash Election, you may not receive the combination of cash and/or shares you elected, depending on the choices made by other Conversant stockholders. See “The Merger—Consideration to be Received in the Merger.” Regardless of whether a Cash Election or Stock Election is made and whether proration is required, all shares of Conversant common stock will receive the equivalent value as described in this proxy statement/prospectus with respect to calculation of the Base Consideration.

If you are a Conversant stockholder and you tender shares of Conversant common stock to make an election, you will not be able to sell those shares unless you revoke your election prior to the election deadline.

 

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If you are a Conversant stockholder and elect to receive the Base Consideration or you make a Cash Election or a Stock Election, you must deliver your stock certificates (if applicable) and a properly completed and signed election form to the exchange agent. You will not be able to sell any shares of Conversant common stock that you have delivered under this arrangement unless you revoke your election before the election deadline by providing written notice to the exchange agent. The election deadline is 5:00 p.m., New York City time, on December 8, 2014. If you do not revoke your election, you will not be able to liquidate your investment in Conversant common stock for any reason until you receive cash consideration and/or stock consideration pursuant to the merger agreement or until the merger agreement is terminated pursuant to its terms. In the time between delivery of your shares and the closing of the merger or termination of the merger agreement, the market prices of Conversant common stock and Alliance Data common stock may increase or decrease, and you might otherwise want, but be unable, to sell your shares of Conversant common stock to gain access to cash, make other investments, or reduce the potential for a decrease in the value of your investment.

The date that Conversant stockholders will receive their merger consideration is uncertain.

The closing of the merger is subject to certain governmental approvals and the satisfaction or waiver of various other conditions. While it is currently anticipated that the merger will be completed in the fourth quarter of 2014, the closing date might be later than expected due to delays in satisfying such conditions. Accordingly, Conversant stockholders cannot be provided with any assurance that they will receive the merger consideration on a specified date, if at all.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees that could adversely affect the future business, operations and financial results of Alliance Data following the merger.

Whether or not the merger is completed, the announcement and pendency of the merger could disrupt the businesses of Alliance Data and Conversant. Alliance Data and Conversant are dependent on the experience and industry knowledge of their senior management and other key employees to execute their business plans. Alliance Data’s success after the merger will depend in part upon the ability of Alliance Data and Conversant to retain key management personnel and other key employees in advance of the merger, and of the combined company’s ability to do so following the merger. Current and prospective employees of Alliance Data and Conversant may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the current ability of each of Alliance Data and Conversant to attract or retain key management and other key personnel or the ability of the combined company to do so following the merger.

Accordingly, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of Alliance Data and Conversant to the same extent that such companies have previously been able to attract or retain employees. In addition, following the merger, Alliance Data might not be able to locate suitable replacements for any such key employees who leave Alliance Data or Conversant or offer employment to potential replacements on satisfactory terms.

Uncertainty about the merger may adversely affect the relationships of Alliance Data, Conversant or the combined company with their respective customers, service providers and employees, whether or not the merger is completed.

In response to the announcement of the merger, existing or prospective customers or service providers of Alliance Data, Conversant or, following the merger, the combined company, may:

 

    delay, defer or cease purchasing services from or providing services to Alliance Data, Conversant or the combined company;

 

    delay or defer other decisions concerning Alliance Data, Conversant or the combined company, or refuse to extend credit to Alliance Data, Conversant or the combined company; or

 

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    otherwise seek to change the terms on which they do business with Alliance Data, Conversant or the combined company.

Any such delays or changes to terms could seriously harm the business of each company or, if the merger is completed, the combined company.

Lawsuits have been filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary challenging the merger, and an adverse ruling may prevent the merger from being completed.

Conversant and Alliance Data, as well as the members of the Conversant board of directors and the Merger Subsidiary, have been named as defendants in lawsuits brought by purported stockholders of Conversant challenging, among other things, the Conversant board of directors’ actions in connection with the merger agreement and seeking, among other things, injunctive relief and other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the defendants from consummating the merger, in addition to unspecified fees and costs. See “The Merger—Litigation Related to the Merger” for more information about the lawsuits that have been filed related to the merger.

One of the conditions to the closing of the merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the merger. Consequently, if a settlement or other resolution is not reached in the lawsuits referenced above and the plaintiffs secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting Alliance Data’s and/or Conversant’s ability to complete the merger, then such injunctive or other relief may prevent the merger from becoming effective within the expected timeframe or at all.

The merger agreement contains provisions that could discourage a potential competing acquiror that might be willing to pay more to effect a business combination with Conversant.

The merger agreement contains “no solicitation” provisions that, subject to certain exceptions, require Conversant to, and to cause each of its controlled affiliates to, use its reasonable best efforts to cause each of its and its controlled affiliates’ representatives to (i) cease and cause to be terminated any discussions or negotiations with any persons (other than Alliance Data) that may have been ongoing on September 11, 2014 with respect to a Company Takeover Proposal and (ii) not, directly or indirectly, (a) solicit, initiate, knowingly encourage or knowingly facilitate any inquiries regarding, or the making of any proposal that constitutes or could reasonably be expected to lead to, a Company Takeover Proposal, (b) engage in, continue or otherwise participate in any discussions or negotiations regarding a Company Takeover Proposal, (c) approve, recommend or enter into, or propose to approve, recommend or enter into, any agreement (whether written or oral, binding or nonbinding) with respect to a Company Takeover Proposal, (d) take any action to make the provisions of any takeover statute inapplicable to the transactions contemplated by a Company Takeover Proposal, or (e) resolve, propose or agree to do any of the foregoing.

In addition, under the merger agreement, the Conversant board of directors must recommend that Conversant stockholders vote in favor of the Merger Proposal, subject to certain exceptions. For more information about these provisions, see “The Merger Agreement—Board Recommendation.” Further, in the merger agreement, Conversant has agreed to pay Alliance Data a termination fee equal to $65.0 million if the merger agreement is terminated under certain circumstances.

We describe these and other provisions under “The Merger Agreement—‘No Solicitation’ Provisions,” “—Notices to Alliance Data,” “—Board Recommendation,” “—Termination of the Merger Agreement” and “—Termination Fee.”

 

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These provisions could discourage a potential third-party acquiror from considering or proposing an acquisition of all or a significant portion of Conversant, even if it were prepared to pay consideration with a higher value than the merger consideration proposed to be paid by Alliance Data in the merger, or might result in a potential third-party acquiror proposing to pay a lower per share price than it might otherwise have proposed to pay because of the added expense of the termination fee.

Alliance Data and Conversant may waive one or more of the conditions to the merger without resoliciting Conversant stockholder approval for the merger.

Each of the conditions to Alliance Data’s and Conversant’s obligations to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of Alliance Data and Conversant, if the condition is a condition to both Alliance Data’s and Conversant’s obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The merger agreement may also be amended by Conversant, Alliance Data and the Merger Subsidiary. The boards of directors of Alliance Data and Conversant may evaluate the materiality of any such waiver or amendment to determine whether, under applicable law and the rules of The NASDAQ Global Select Market, amendment of this proxy statement/prospectus and resolicitation of proxies are necessary. Alliance Data and Conversant, however, generally do not expect any such waiver or amendment to be significant enough to require resolicitation of Conversant’s stockholders. In the event that any such waiver or amendment is not determined to be significant enough to require resolicitation of Conversant’s stockholders, the companies will have the discretion to complete the merger without seeking further Conversant stockholder approval.

Certain contracts to which Conversant is a party may require consent in connection with the merger, which could negatively affect Alliance Data following the merger.

Conversant is party to numerous contracts, agreements, licenses, permits, authorizations and other arrangements that contain provisions giving counterparties certain rights (including, in some cases, termination rights) in the event of an “assignment” of the contract or agreement or a “change in control” of Conversant or its subsidiaries. The definitions of “assignment” and “change in control” vary from contract to contract and, in some cases, the “assignment” or “change in control” provisions may be implicated by the merger. If an “assignment” or “change in control” occurs, a counterparty may be permitted to terminate its contract with Conversant.

Whether a counterparty would have cancellation rights in connection with the merger depends upon the language of its agreement with Conversant. Whether a counterparty exercises any cancellation rights it has would depend on, among other factors, such counterparty’s views with respect to the financial strength and business reputation of Alliance Data following the merger and prevailing market conditions. Conversant cannot presently predict the effects, if any, if the merger is deemed to constitute a change in control under certain of its contracts and other arrangements, including the extent to which cancellation rights would be exercised, if at all, or the effect on Alliance Data’s financial condition, results of operations or cash flows following the merger, but such effect could be material.

Conversant stockholders will not know the federal income tax consequences to them of the merger at the time that they make an election as to the form of the consideration or at the time they vote.

The federal income tax consequences of the merger to each Conversant stockholder will vary depending on whether we complete the merger through the use of the forward merger or reverse merger structure. These consequences will also vary depending on whether a Conversant stockholder receives cash, stock, or a combination of cash and stock in exchange for the stockholder’s shares of Conversant common stock. At the time that a Conversant stockholder makes an election as to the form of the consideration to be received in the merger and at the time that the stockholder votes on the merger, the stockholder will not know if, or to what extent, the consideration proration procedures will be applicable. Therefore, a Conversant stockholder will not know at those times the extent to which the stockholder’s elected forms of merger consideration will be given effect.

 

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Additionally, at the time of making the election and voting on the merger, the Conversant stockholders will not know which of the two alternative structures we will use to complete the acquisition. Accordingly, although the federal tax treatment of both of these alternative structures is described herein, the actual federal income tax consequences to each Conversant stockholder will not be ascertainable at that time. If the forward merger structure is used, Alliance Data and Conversant intend for the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. However, if the reverse merger structure is used or the merger otherwise fails to qualify as a reorganization under Section 368 of the Code, then the holders of Conversant common stock whose shares are exchanged in the merger for merger consideration will generally recognize gain or loss in an amount equal to the difference between (i) the fair market value, as of the effective time of the merger, of Alliance Data common stock received plus any cash received and (ii) the holder’s adjusted tax basis in the shares of Conversant common stock surrendered. Such gain or loss generally will be determined separately with respect to each block of Conversant shares surrendered in the merger, and generally will be long-term capital gain or loss if the holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger. The tax consequences to Conversant stockholders of the merger are described in greater detail in the section entitled “Material U.S. Federal Income Tax Consequences.” You are urged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

Diversion of management’s attention could harm Alliance Data, Conversant or the combined company, whether or not the merger is completed.

Completion of the merger will require a significant amount of time and attention from the management of each of Alliance Data and Conversant. The diversion of management’s attention away from ongoing operations could adversely affect the ongoing operations and business relationships of each company prior to the merger and, if the merger is completed, those of the combined company.

Alliance Data and Conversant will incur significant costs in connection with the merger.

Alliance Data and Conversant will incur substantial expenses related to the merger, whether or not the merger is completed. Moreover, each company could incur additional unanticipated expenses in connection with the transaction, including costs associated with any stockholder litigation related to the merger. In addition, in the event that the merger agreement is terminated under circumstances described under the heading “The Merger Agreement—Termination of the Merger Agreement,” Conversant may be required to pay Alliance Data a $65.0 million termination fee. See “The Merger Agreement—Termination Fee.”

Current Alliance Data stockholders and Conversant stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management.

Current Alliance Data stockholders have the right to vote in the election of the Alliance Data board of directors and on other matters affecting Alliance Data. Current Conversant stockholders have the right to vote in the election of the Conversant board of directors and on other matters affecting Conversant. Immediately after the merger is completed, it is expected that, on a fully-diluted basis, current Alliance Data stockholders will collectively own approximately 93%, and current Conversant stockholders will collectively own approximately 7%, of the outstanding shares of Alliance Data common stock. As a result of the merger, current Alliance Data stockholders and current Conversant stockholders will have less influence on the management and policies of Alliance Data post-merger than they now have on the management and policies of Alliance Data and Conversant, respectively.

 

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Some of the directors and executive officers of Conversant may have personal interests that differ from those of Conversant’s stockholders and may motivate them to support or approve the merger.

Some of the directors of Conversant who have recommended the merger to Conversant stockholders and the executive officers of Conversant who provided information to the Conversant board of directors relating to the merger have employment, indemnification and/or severance benefit arrangements, rights to acceleration of restricted stock awards, and rights to ongoing indemnification and insurance that provide them with interests in the merger. Any of these arrangements or benefits may cause these individuals to have interests that may differ from those of other Conversant stockholders. The benefits that would result from the merger may have influenced these directors in approving the merger and these executive officers in supporting the merger.

If you are a Conversant stockholder, you should consider these interests when you consider the recommendation of the Conversant board of directors that you vote for the adoption of the merger agreement. As a result of these interests, these directors and executive officers may be more likely to support the merger than they would if they did not have these interests. For a discussion of the interests of directors and executive officers in the merger, see “The Merger—Interests of Directors and Executive Officers of Conversant in the Merger.”

The shares of Alliance Data common stock to be received by Conversant stockholders as a result of the merger will have different rights from the shares of Conversant common stock.

Upon closing of the merger, Conversant stockholders will become stockholders of Alliance Data, and their rights as stockholders will be governed by the Alliance Data charter and the Alliance Data bylaws. The rights associated with Conversant common stock are different from the rights associated with shares of Alliance Data common stock. For more information, see “Comparison of Stockholders’ Rights.”

Risk Factors Relating to Alliance Data Following the Merger

In addition to the risk factors described in this proxy statement/prospectus, following the merger, Alliance Data will be subject to many of the risks described in Conversant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by Conversant’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Information Incorporated by Reference” for the location of information incorporated by reference in this proxy statement/prospectus.

Alliance Data may be unable to integrate successfully the businesses of Conversant and realize the anticipated benefits of the merger or do so within the intended timeframe.

The merger involves the combination of two organizations that currently operate as independent public companies. Due to legal restrictions, Alliance Data and Conversant have conducted only limited planning regarding the integration of the two companies, and they will continue to operate as independent public companies until the closing of the merger. The combined company will be required to devote significant management attention and resources to integrating the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price.

Achieving the anticipated benefits of the merger will depend, in part, on the integration of operations, personnel and technology of Alliance Data and Conversant. If Alliance Data is unable to successfully integrate Conversant’s business into its business in a manner that permits the combined company to achieve the cost savings and operating synergies anticipated to result from the merger, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

 

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Potential difficulties the combined company may encounter in the integration process include the following:

 

    lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the combined company;

 

    the inability to retain, recruit or motivate key personnel;

 

    complexities associated with managing the combined businesses, including complexities associated with integrating geographically separated organizations and the demands of managing new lines of business;

 

    any delay in the integration of management teams, strategies, operations, products and services;

 

    diversion of the attention of each company’s management as a result of the merger and any resulting performance shortfalls at one or both of the companies;

 

    differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;

 

    potential unknown liabilities and unforeseen increased expenses or delays associated with the merger;

 

    disruption or interruption of, or loss of momentum in, each company’s ongoing businesses;

 

    inconsistencies in, or the inability to create and enforce, standards, controls, procedures and policies, including disclosure systems, compliance requirements, accounting systems, accounting controls and procedures, and information systems; and

 

    the challenge of integrating complex systems, technology, networks and other assets of Conversant into those of Alliance Data in a seamless manner that minimizes any adverse impact on customers, service providers, employees and other constituencies.

Any of these factors could adversely affect the combined company’s ability to maintain relationships with customers, service providers and employees or the combined company’s ability to achieve the anticipated benefits of the merger, or could reduce earnings or otherwise adversely affect the business and financial results of the combined company.

Even if Alliance Data is able to integrate Conversant’s business operations successfully, this integration may not result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be possible from this integration and these benefits may not be achieved within a reasonable period of time.

Further, following the closing of the merger, Alliance Data expects to incur expenses in connection with the integration of Conversant’s business into a combined company, some of which could be significant. There are a large number of systems that must be integrated, including management information, purchasing, accounting and finance, sales, billing, payroll and benefits and regulatory compliance. Alliance Data has assumed that a certain level of expenses would be incurred from the integration of the two companies, but there are a number of factors beyond Alliance Data’s control that could affect the total amount or the timing of all the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are impracticable to estimate at the present time. These expenses could, particularly in the near term, exceed the savings that Alliance Data expects to achieve from the elimination of duplicative expenses, the realization of economies of scale, and cost savings and revenue synergies related to the integration of the two companies following the closing of the merger. The amount and timing of any these charges are uncertain at the present time. In addition, the combined company may incur additional material charges in subsequent fiscal quarters to reflect additional costs in connection with the merger.

 

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The results of Alliance Data after the merger may suffer if Alliance Data does not effectively manage its expanded operations following the merger.

Following the merger, the size of the business of Alliance Data will increase significantly beyond the current size of Alliance Data’s existing business. Alliance Data’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of additional global operations and associated increased costs and complexity. There can be no assurances that Alliance Data will be successful after closing of the merger or that it will realize the expected benefits currently anticipated from the merger.

Sales of substantial amounts of Alliance Data common stock in the open market, by former Conversant stockholders or otherwise, could depress Alliance Data’s stock price.

Following the merger, stockholders of Alliance Data and former stockholders of Conversant will own interests in a combined company operating an expanded business with more assets and a different mix of liabilities. Current holders of Alliance Data and Conversant common stock may not wish to continue to invest in the additional operations of the combined company, or for other reasons may wish to dispose of some or all of their interests in the combined company.

Shares of Alliance Data common stock that are issued to stockholders of Conversant in the merger will be freely tradable by such stockholders without restrictions or further registration under the Securities Act, provided, however, that any stockholders who are affiliates of Alliance Data will be subject to the resale restrictions of Rule 144 under the Securities Act. As of the date of this proxy statement/prospectus, Alliance Data had approximately             shares of common stock outstanding and approximately             shares of common stock subject to outstanding options and other rights to purchase or acquire its shares. Alliance Data currently expects that it may issue up to a maximum of 4,647,088 million shares of its common stock in the merger.

If the merger is completed and stockholders of Alliance Data, including former Conversant stockholders, sell substantial amounts of Alliance Data common stock in the public market following the closing of the merger, the market price of Alliance Data common stock may decrease. These sales might also make it more difficult for Alliance Data to raise capital by selling equity or equity-related securities at a time and price that it otherwise would deem appropriate.

The combined company will face uncertainties related to the effectiveness of internal controls.

Public companies in the United States are required to review their internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. Any system of control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, any design may not achieve its stated goal under all potential future conditions, regardless of how remote.

The integration of Alliance Data and Conversant, and their respective internal control systems and procedures, may result in or lead to a future material weakness in the combined company’s internal controls, or the combined company or its independent registered public accounting firm may identify a material weakness in the combined company’s internal controls in the future. A material weakness in internal control over financial reporting would require management and the combined company’s independent public accounting firm to evaluate the combined company’s internal controls as ineffective. If the combined company’s internal control over financial reporting is not considered adequate, the combined company may experience a loss of public confidence, which could have an adverse effect on its business and stock price.

 

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Internal control deficiencies or weaknesses that are not yet identified could emerge.

Over time the combined company may identify deficiencies or weaknesses in its internal controls and, where and when appropriate, report on these deficiencies or weaknesses. However, the internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that have not been identified by Alliance Data or Conversant could emerge and these deficiencies or weaknesses could have a material impact on the results of operations for the combined company.

Charges to earnings resulting from the application of the acquisition method of accounting may adversely affect the market value of Alliance Data common stock following the closing of the merger.

In accordance with GAAP, the merger will be accounted for using the acquisition method of accounting, which will result in charges to earnings that could have an adverse impact on the market value of Alliance Data common stock following the closing of the merger. Under the acquisition method of accounting, the total estimated purchase price will be allocated to Conversant’s net tangible assets and identifiable intangible assets based on their respective fair values as of the date of closing of the merger. Any excess of the purchase price over those fair values will be recorded as goodwill. The combined company will incur additional amortization expense based on the identifiable amortizable intangible assets acquired pursuant to the merger agreement and their relative useful lives. Additionally, to the extent the value of goodwill or identifiable intangible assets or other long-lived assets may become impaired, the combined company will be required to incur charges relating to the impairment. These amortization and potential impairment charges could have a material impact on the combined company’s results of operations.

Alliance Data currently estimates that it will incur approximately $169.7 million of incremental amortization expense annually after closing of the merger. The actual amount of the incremental amortization expense will be based on the fair value of the identifiable definite-lived intangible assets. The fair value of the identifiable definite-lived intangible assets is preliminary and subject to further adjustments upon closing of the merger. Differences between preliminary estimates and the final purchase price allocation amounts will occur and these differences may have a material impact on the amount of incremental amortization expense. Changes in earnings per share, including as a result of this incremental expense, could adversely affect the trading price of Alliance Data common stock.

The unaudited pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.

The unaudited pro forma financial statements contained in this proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. The unaudited pro forma financial statements have been derived from the historical financial statements of Alliance Data and Conversant and certain adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with complete accuracy. Moreover, the unaudited pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the unaudited pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these unaudited pro forma financial statements.

In addition, the assumptions used in preparing the unaudited pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial conditions or results of operations following the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Other Risk Factors of Alliance Data and Conversant

Alliance Data’s and Conversant’s businesses are and will be subject to the risks described above. In addition, Alliance Data and Conversant are, and will continue to be, subject to the risks described in Alliance Data’s and Conversant’s respective Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by Alliance Data’s and Conversant’s respective subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents they file with the SEC, in each case incorporated by reference into this proxy statement/prospectus. See “Information Incorporated by Reference” for the location of information incorporated by reference in this proxy statement/prospectus.

 

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THE MERGER

The following is a discussion of the merger and the material terms of the merger agreement between Alliance Data and Conversant. This is a summary only and may not contain all information that is important to you. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated herein by reference, for a more complete understanding of the merger.

Effect of the Merger

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Conversant will merge with and into the Merger Subsidiary, with the Merger Subsidiary surviving the merger as a wholly-owned subsidiary of Alliance Data. We expect that, on a fully-diluted basis, the existing stockholders of Alliance Data and the former stockholders of Conversant will own approximately 93% and 7%, respectively, of the outstanding Alliance Data common stock following the merger.

The merger agreement contains a “Reverse Merger Condition” that requires that the form of the merger be revised and that Alliance Data form a new subsidiary corporation that would merge with and into Conversant, which would be the surviving entity in the merger. The Reverse Merger Condition would apply if, on the trading date immediately before the closing date of the merger, the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in the merger (i.e., cash plus Alliance Data common stock). See “Material U.S. Federal Income Tax Consequences.”

Consideration to be Received in the Merger

In the proposed merger, Conversant stockholders will receive for each share of Conversant common stock eligible to receive the merger consideration the combination, which we refer to as the Base Consideration, of (x) 0.07037 of a share, which we refer to as the Fixed Exchange Ratio, of Alliance Data common stock and (y) an amount in cash equal to $35.00 minus the product of the volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the merger’s closing, which we refer to as the Parent Closing Trading Price, multiplied by the Fixed Exchange Ratio, which cash portion of the Base Consideration we refer to as the Per Share Cash Consideration. Notwithstanding the foregoing, the Per Share Cash Consideration will not exceed $18.62, which we refer to as the Per Share Cash Cap, and will not be less than $14.98, which we refer to as the Per Share Cash Minimum. In the event that the Per Share Cash Cap or Per Share Cash Minimum is reached, the Per Share Cash Consideration will be fixed at the Per Share Cash Cap or the Per Share Cash Minimum, as applicable, and the value that Conversant stockholders will receive for each share of Conversant common stock will fluctuate below or above $35.00, as applicable, to the extent that the Parent Closing Trading Price is below $232.75 or above $284.48.

In lieu of the Base Consideration described above, each Conversant stockholder will have the right to elect to receive for each share of Conversant common stock eligible to receive merger consideration (1) cash equal to $35.00, except in the case in which the Per Share Cash Cap or Per Share Cash Minimum has been reached, in which case, cash equal to the sum of the (x) Fixed Exchange Ratio multiplied by the Parent Closing Trading Price and (y) the Per Share Cash Consideration, which election we refer to as a Cash Election, or (2) a number of shares of Alliance Data common stock equal to the sum of the (x) Fixed Exchange Ratio and (y) the quotient of the Per Share Cash Consideration divided by the Parent Closing Trading Price, which election we refer to as a Stock Election, and which consideration we refer to as the Per Share Stock Election Consideration, and, in the case of either a Cash or Stock Election, both are subject to proration as described below.

The Base Consideration otherwise payable on each share of Conversant common stock as to which either a Cash Election or Stock Election has been made will be pooled and reallocated among all such shares of

 

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Conversant common stock as to which an election has been made. This pooling and reallocation means that each such share gets to the greatest extent possible, all cash or all Alliance Data common stock, but with the consideration payable on each such share of Conversant common stock pro rated to the extent there is not enough cash or enough Alliance Data common stock to pay pursuant to each such election (and with the difference between such pro rated amount being made up in the remaining Alliance Data common stock or cash, as applicable). The aggregate amount of cash and shares of Alliance Data common stock payable by Alliance Data in the merger shall equal the aggregate amount of cash and shares of Alliance Data common stock that would have otherwise been payable by Alliance Data if no election had been made by Conversant stockholders, and all such stockholders were to receive the Base Consideration. Shares of Conversant common stock (i) held in Conversant’s treasury, (ii) held by Alliance Data or any of its subsidiaries, (iii) issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger, or (iv) as to which the holder has properly exercised appraisal rights will not receive the merger consideration (except that shares of Conversant common stock that were issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger shall be entitled to receive the consideration described under the heading “The Merger—Treatment of Conversant Stock Options and Other Equity Awards”).

The following table illustrates the value of the Base Consideration per share of Conversant common stock for different hypothetical Parent Closing Trading Prices (with the shaded lines defining the lower and upper boundaries of the collar).

 

Parent Closing
Trading Price (a)

   Fixed
Exchange Ratio
   Approx. Value of
Per Share
Stock Consideration (b)
   Approx. Per Share
Cash
Consideration
   Approx. Total Value of
Per Share Merger
Consideration

$220.00

   0.07037    $15.48    $18.62    $34.10

$225.00

   0.07037    $15.83    $18.62    $34.45

$230.00

   0.07037    $16.19    $18.62    $34.81

$232.00

   0.07037    $16.33    $18.62    $34.95

$232.75(c)

   0.07037    $16.38    $18.62    $35.00

$233.00

   0.07037    $16.40    $18.60    $35.00

$235.00

   0.07037    $16.54    $18.46    $35.00

$240.00

   0.07037    $16.89    $18.11    $35.00

$245.00

   0.07037    $17.24    $17.76    $35.00

$255.00

   0.07037    $17.94    $17.06    $35.00

$258.00

   0.07037    $18.16    $16.84    $35.00

$258.61(d)

   0.07037    $18.20    $16.80    $35.00

$259.00

   0.07037    $18.23    $16.77    $35.00

$260.00

   0.07037    $18.30    $16.70    $35.00

$265.00

   0.07037    $18.65    $16.35    $35.00

$270.00

   0.07037    $19.00    $16.00    $35.00

$275.00

   0.07037    $19.35    $15.65    $35.00

$280.00

   0.07037    $19.70    $15.30    $35.00

$284.00

   0.07037    $19.99    $15.01    $35.00

$284.48(e)

   0.07037    $20.02    $14.98    $35.00

$285.00

   0.07037    $20.06    $14.98    $35.04

$290.00

   0.07037    $20.41    $14.98    $35.39

$295.00

   0.07037    $20.76    $14.98    $35.74

$300.00

   0.07037    $21.11    $14.98    $36.09

 

(a) Hypothetical volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger.
(b) Note that per the terms of the merger agreement, any fractional shares of Alliance Data common stock payable to any holder of Conversant common stock will be aggregated and paid in cash.

 

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(c) Reflects a 10% reduction in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the lower boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Cap is reached.
(d) The 7-day volume weighted average price per share of Alliance Data common stock on the NYSE as of the close of business on September 10, 2014, the last business day prior to the date the merger agreement was executed, referred to in this proxy statement/prospectus as the Parent Signing Trading Price.
(e) Reflects a 10% increase in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the upper boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Minimum is reached.

For tabular illustrations of proration calculations for different hypothetical Cash Elections and Stock Elections that may be made by Conversant stockholders under the terms of the merger agreement, see Annex D to this proxy statement/prospectus.

The tables included or referenced above are for illustrative purposes only. The value of the merger consideration that a Conversant stockholder actually receives will be based on the actual Parent Closing Trading Price, and the mix of merger consideration that an electing Conversant stockholder actually receives will depend on the elections made by other Conversant stockholders.

Alliance Data will not issue any fractional shares of its common stock in the merger. Instead, Conversant stockholders will receive cash in lieu of any fractional shares in an amount determined by multiplying (x) the closing price of Alliance Data common stock reported on the NYSE on the trading day immediately preceding the date of the merger’s closing by (y) the fraction of a share of Alliance Data common stock to which the stockholder would otherwise be entitled.

The merger agreement provides for adjustments to the merger consideration to reflect fully the effect of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares, or any similar event with respect to Alliance Data common stock or Conversant common stock occurring between September 11, 2014 and the effective time of the merger.

Procedures for Election

The form of election will be made available to Conversant stockholders on the same day as this proxy statement/prospectus. The form of election enables Conversant stockholders to choose to make a Stock Election, a Cash Election or choose the default Base Consideration with respect to each of their shares of Conversant common stock eligible to receive the merger consideration. Conversant stockholders have until 5:00 p.m. New York City time on December 8, 2014, referred to in this proxy statement/prospectus as the “election deadline,” to make their election and return their completed election forms, along with any stock certificates held, to the exchange agent. If a stockholder holds shares of Conversant common stock through a bank, broker or other nominee, such bank, broker or other nominee, as applicable, will provide that stockholder with instructions on how to make an election. If a stockholder holds shares of Conversant restricted stock that will be unvested as of the election deadline but will vest prior to or in connection with the closing of the merger, that stockholder will be provided with instructions on how to make an election with respect to those shares.

With respect to shares of Conversant common stock that are held in certificated form, the delivery of the stock certificates, together with the properly completed form of election, shall be effected only upon delivery to the exchange agent of the physical certificates representing the shares of Conversant common stock to which such form of election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of Conversant. With respect to shares of Conversant common stock that are held in “book-entry” form, the holder should follow the instructions in the form of election in order to make an election. The shares of Conversant common stock with respect to which an election is made will not be considered to be properly delivered if the exchange agent receives a guarantee of delivery of such shares (from a firm that is an “eligible guarantor

 

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institution” as defined in Rule 17Ad-15 under the Exchange Act) without delivery of the physical certificates by the election deadline. Further, Conversant stockholders who have lost their certificates will need to have such certificates replaced in advance of the election deadline to allow sufficient time for delivery of their replacement certificates to the exchange agent by the election deadline. If Conversant stockholders do not send their completed form of election to the exchange agent by the election deadline, or fail to properly deliver their certificates or other documents specified in the form of election (with respect to certificated or book-entry shares for which an election is made) by the election deadline, such stockholders will not be deemed to have made a proper election and will instead receive the Base Consideration.

Background of the Merger

The following chronology summarizes the key meetings, conversations and events that led to the signing of the merger agreement. This chronology covers only key events leading up to the merger agreement and does not purport to catalogue every communication between representatives of Alliance Data and Conversant.

The Conversant board of directors has from time to time in recent years engaged with senior management in strategic reviews and considered ways to enhance the company’s performance and prospects in light of the business and economic environment. These reviews have included consideration of potential transactions with various parties that would further Conversant’s strategic objectives, including consideration of the potential benefits and risks of those transactions. These strategic reviews have on several occasions related to informal exploratory discussions regarding potential strategic transactions, including possible mergers, acquisitions, other business combinations or divestitures. As of April 3, 2014, Conversant was a party to confidentiality agreements entered into in connection with a potential strategic transaction with Company A, Financial Buyer A and Financial Buyer B, one of which contained a standstill agreement. None of these parties made any proposal to engage in a transaction with Conversant.

On April 3, 2014, Edward Heffernan, the Chief Executive Officer of Alliance Data and John Giuliani, the Chief Executive Officer of Conversant held an introductory meeting at the Alliance Data offices in Plano, Texas. The meeting had been arranged by representatives of Wells Fargo Securities, LLC, which we refer to as Wells Fargo Securities, an investment bank that from time to time has provided investment banking and financial services to Alliance Data and Conversant. Mr. Heffernan and Mr. Giuliani discussed in general terms information regarding Alliance Data and Conversant and the ad-tech industry generally. At the conclusion of the meeting, Mr. Heffernan and Mr. Giuliani agreed to meet again in the future for further discussions.

On April 25, 2014, Mr. Giuliani and Ric Elert, Conversant’s Chief Operating Officer of Media, met with Mr. Heffernan and other representatives of Alliance Data, including Bryan Kennedy, the Chief Executive Officer of Alliance Data’s Epsilon segment, in order for the parties to get to know each other’s businesses better. The group discussed in general terms information regarding Alliance Data and Conversant and the ad-tech industry generally. At the conclusion of the meeting, Mr. Heffernan suggested that Alliance Data and Conversant consider combining the companies, but indicated that Alliance Data would not be in a position to move forward in a formal manner until the summer of 2014.

During June of 2014, there was one meeting among members of management of Conversant and members of management of Epsilon and one meeting between the Chief Executive Officer of Alliance Data and Chief Executive Officer of Conversant. At these meetings, the parties discussed in general terms the respective business models of Epsilon and Conversant and whether there could be a strategic fit between the two companies.

On June 5, 2014, members of Alliance Data’s management presented an overview of Conversant’s business to Alliance Data’s board of directors during a regularly scheduled board meeting.

On June 20, 2014, Company A reached out to Morgan Stanley, which had been involved with previous discussions between Company A and Conversant, indicating it had interest in discussing a strategic transaction

 

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with Conversant. Morgan Stanley informed Mr. Giuliani of this inquiry. Based on the previous discussions between Company A and Conversant, there were doubts about Company A’s interest in pursuing and ability to consummate a transaction with Conversant. Nonetheless, Mr. Giuliani directed Morgan Stanley to engage further with Company A.

On July 9, 2014, Mr. Giuliani and representatives of Morgan Stanley held an introductory meeting with Company B. In a subsequent discussion with Morgan Stanley, Company B indicated that it was not interested in pursuing further discussions with Conversant.

On July 16, 2014, Mr. Heffernan and Mr. Giuliani spoke by phone. Mr. Heffernan indicated that Alliance Data would be in a position to send a letter of interest to Conversant on approximately July 22, 2014. Mr. Heffernan indicated that Alliance Data’s letter of interest might include a proposed price per share of $30. Mr. Giuliani indicated that he would share any offer with the Conversant board of directors, but that he did not believe that a price of $30 per share would be compelling to the Conversant board of directors.

On July 17, 2014, the Alliance Data board of directors held a telephonic meeting during which management presented additional information regarding Conversant and its business. After discussion, the Alliance Data board of directors authorized management to deliver to Conversant a non-binding proposal with indicative pricing, mix of consideration and other terms and conditions as approved by the Alliance Data board of directors during the meeting.

On July 22, 2014, Alliance Data sent a written, non-binding indication of interest, or the July 22 Proposal, to Mr. Giuliani and James Zarley, the Chairman of the Conversant board of directors, proposing a transaction in which Alliance Data would acquire all of the outstanding shares of Conversant common stock for consideration consisting 51% of Alliance Data common stock and 49% of cash. The letter indicated a price range of $30 to $32 per share.

On July 23, 2014, the Conversant board of directors held a telephonic meeting at which Conversant’s general counsel and a representative of Conversant’s outside legal advisors, Gibson, Dunn & Crutcher LLP, or Gibson Dunn, were present. At the meeting, the Conversant board of directors discussed the July 22 Proposal. The Conversant board of directors decided to consider and analyze, with the assistance of a financial advisor, whether Conversant should consider a sale of Conversant at that time. The Conversant board of directors determined to invite representatives of Morgan Stanley to meet with the Conversant board of directors at its meeting on July 31, 2014 due to Morgan Stanley’s qualifications and industry experience, as well as its long-standing advisory relationship with Conversant. Gibson Dunn reviewed the Conversant board of directors’ fiduciary duties in the event that the Conversant board of directors determined that Conversant should consider a sale or other strategic alternative at that time. Gibson Dunn also provided advice regarding director conflicts of interest and independence for purposes of evaluating such a transaction. The Conversant board of directors concluded that the majority of its members were disinterested and independent for purposes of evaluating the proposed transaction.

On July 30, 2014, Mr. Heffernan and Mr. Giuliani spoke by phone and discussed the July 22 Proposal, including how Alliance Data arrived at its proposed valuation of Conversant.

On July 31, 2014, the Conversant board of directors held a regularly scheduled meeting at which members of Conversant’s management team were present. At the meeting, representatives of Morgan Stanley discussed with the Conversant board of directors Morgan Stanley’s initial valuation analyses of Conversant and the financial terms of the July 22 Proposal. The Conversant board of directors discussed the July 22 Proposal and the possible responses thereto, including other potential acquirors of Conversant in the event that Conversant were to consider a possible sale. The Conversant board of directors discussed the advantages and risks of exploring a potential strategic transaction with a party other than Alliance Data, including the risk of leaks that might arise from making contact with a large number of other parties in the industry, potential disruptions to Conversant’s business and employees of any such leaks, the likelihood that outbound calls would actually generate interest in a

 

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transaction with Conversant, and Conversant’s own strong knowledge and understanding of its business prospects and value as a stand-alone enterprise. After the discussion, the Conversant board of directors instructed Morgan Stanley to reach out to Companies C, D and E to determine if such companies had interest in a discussion with Conversant. These companies were identified by Morgan Stanley in conjunction with Company management as the most likely to be interested in making a proposal to acquire Conversant. The Conversant board of directors also authorized Morgan Stanley and Mr. Giuliani to reach out to Company A to determine if Company A had interest in further discussions with Conversant. The Conversant board of directors acknowledged, however, that regulatory concerns had arisen in Conversant’s initial discussions of a transaction with Company A that would likely affect Company A’s interest in making a proposal and its ability to consummate a transaction with Conversant. As a result, the Conversant board of directors believed it was unlikely that Company A would make a proposal to acquire Conversant. The Conversant board of directors also authorized Mr. Giuliani to reach out to Financial Buyer A to determine its interest in potential discussions concerning a transaction. The Conversant board of directors also instructed Mr. Giuliani to continue discussions with Alliance Data, but to inform Alliance Data that it would have to improve its proposal to warrant further substantive discussions regarding a potential business combination between the companies.

On August 1, 2014, Morgan Stanley informed Company A that Conversant had received an indication of interest from a potential strategic acquirer. Company A asked for details about timing and indicated that it was interested in setting up a meeting with Conversant.

On August 1, 2014, Morgan Stanley contacted Company C to gauge its interest in pursuing a strategic transaction with Conversant. Company C had previously reviewed the merits of acquiring Conversant but subsequently indicated that it had decided not to make it a strategic priority.

On August 2, 2014, a Conversant representative spoke with representatives of Company A, and Company A indicated it was interested in moving forward with preliminary discussions. Company A indicated that if it was comfortable with the outcome of a diligence meeting scheduled for August 7, 2014 it would consider submitting a proposal early the week of August 11, 2014.

On August 5, 2014, Morgan Stanley followed up with Company C. Company C indicated that it was not interested in pursuing a potential transaction with Conversant.

On August 5, 2014, Morgan Stanley contacted Company D to gauge its interest in pursuing a strategic transaction with Conversant. Company D indicated it did not expect Conversant to be of interest as an acquisition target given other strategic priorities.

On August 6, 2014, Morgan Stanley contacted Company E to gauge its interest in pursuing a transaction with Conversant.

On August 7, 2014, representatives of Company A met with representatives of Conversant to conduct due diligence discussions. Representatives from Company A indicated they would need to conduct additional due diligence and that submitting an indication of interest by early the following week would be difficult.

On August 11, 2014, Company A informed Morgan Stanley that it would need more time to consider a proposal to acquire Conversant. Company A indicated that it was unlikely to make an acquisition proposal because of its concerns about its ability to obtain regulatory approval for an acquisition of Conversant.

On August 11, 2014, Mr. Giuliani spoke with a representative of Financial Buyer A. Mr. Giuliani indicated that Conversant had received an indication of interest from a potential strategic acquirer. Mr. Giuliani and the representative of Financial Buyer A discussed arranging a meeting between Mr. Giuliani and representatives of Financial Buyer A.

On August 12, 2014, Company E indicated to Morgan Stanley that it did not have an interest in pursuing a strategic transaction with Conversant.

 

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On August 13, 2014, Mr. Giuliani spoke with Mr. Heffernan and indicated that Conversant would be interested in continuing discussions with Alliance Data, but that the indicative price of $30 to $32 per Conversant share was too low. Mr. Giuliani and Mr. Heffernan discussed the valuation of Conversant. Mr. Giuliani indicated that the Conversant board of directors might consider proceeding with discussions based on an indicative price of $35 per share. At the conclusion of the call, Mr. Heffernan indicated that he would seek approval from the Alliance Data board of directors for an indicative price of $35 per Conversant share, which Mr. Heffernan indicated would be Alliance Data’s best and final offer. Mr. Heffernan indicated that Alliance Data would condition further discussions concerning a potential transaction on Conversant entering into an exclusive negotiating period.

On August 14, 2014, Mr. Heffernan updated the Alliance board of directors regarding his discussions with Mr. Giuliani regarding the July 22 Proposal. After discussion, the Alliance Data board of directors authorized management to deliver to Conversant a non-binding proposal reflecting the revised transaction terms approved by the Alliance Data board of directors.

On August 14, 2014, Mr. Heffernan and Mr. Giuliani spoke and Mr. Heffernan conveyed an oral, non-binding indication of interest, or the August 14 Proposal, for a transaction in which Alliance Data would acquire all of the outstanding shares of Conversant for consideration consisting 51% of Alliance Data common stock and 49% of cash, at a price of $35 per share of Conversant common stock. Mr. Heffernan indicated that proceeding with discussions based on the August 14 Proposal was conditioned on Conversant granting Alliance Data an exclusive negotiating period.

On August 14, 2014, the Conversant board of directors, along with members of management and representatives of Morgan Stanley and Gibson Dunn, held a telephonic meeting. The terms of Alliance Data’s proposal were discussed. Representatives of Gibson Dunn reviewed with the Conversant board of directors its fiduciary duties with respect to a possible transaction and granting an exclusive negotiating period to Alliance Data. The Conversant board of directors also discussed the results of the outreach made by Morgan Stanley and Mr. Giuliani to Companies A, C, D and E and Financial Buyer A, and the fact that no proposals or indications of any serious interest in pursuing a transaction with Conversant had emerged. The Conversant board of directors and Morgan Stanley also discussed their views that $35 per share was likely a higher value than a financial buyer could reasonably be expected to propose. At the meeting, Morgan Stanley reviewed its updated financial analyses of Conversant and the financial terms of Alliance Data’s proposal. After further discussion amongst the Conversant board of directors and with Morgan Stanley, the Conversant board of directors concluded that the Alliance Data proposal likely represented the best value reasonably available to the Conversant stockholders. After consideration of all the factors discussed at the meeting, the Conversant board of directors authorized management to enter into an exclusive negotiating period until mid-September to negotiate a potential transaction with Alliance Data based on the August 14 Proposal.

On August 15, 2014, Alliance Data sent a non-binding letter dated August 14, 2014 to Mr. Giuliani and Mr. Zarley confirming the terms of the August 14 Proposal, and Mr. Giuliani informed Mr. Heffernan that the Conversant board of directors had authorized him to enter into an exclusive negotiation period until mid-September to pursue a potential transaction with Alliance Data based on the August 14 Proposal.

On August 15, 2014, Alliance Data provided an exclusivity letter and mutual confidentiality agreement, and Conversant provided comments to those documents. The confidentiality agreement included a 12-month mutual standstill. The standstill provisions would not prohibit either party from making a non-public proposal to the chief executive officer or board of the other party and would fall away upon a party entering into an alternate transaction. After negotiations, legal advisors to Alliance Data and Conversant resolved all open points on the exclusivity letter and confidentiality agreement.

On August 18, 2014, Alliance Data and Conversant executed the exclusivity letter and confidentiality agreement. Following the execution of those agreements, Conversant provided Alliance Data and its advisors with access to a virtual data room containing requested business and legal due diligence materials.

 

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During the period from August 19, 2014 through September 10, 2014, members of management of Conversant and Alliance Data, together with their legal and financial advisors, conducted a number of due diligence calls and meetings on a variety of topics. These discussions also included legal, business and financial due diligence on Alliance Data conducted by members of Conversant’s management team and its legal and financial advisors.

On August 23, 2014, Akin Gump Strauss Hauer and Feld LLP, or Akin Gump, legal counsel to Alliance Data, provided to Conversant an outline of indicative terms setting forth additional key terms of the proposed acquisition. Alliance Data proposed to calculate the per share consideration at a value of $35 (including a fixed number of shares of Alliance Data common stock and a floating amount of cash, based upon the volume weighted average price of the Alliance Data common stock for a specified period prior to closing), subject to a 17% collar, outside of which the value to Conversant stockholders would float up or down. The consideration would consist of 52% of Alliance Data common stock and 48% of cash based on the market price of Alliance Data’s shares as of the signing date, though the final mix of shares and cash would be based on the market price of Alliance Data’s share as of the closing date. Alliance Data’s proposed terms included a “force the vote” provision and did not include a fiduciary termination right on behalf of Conversant. Alliance Data’s terms proposed a $100 million termination fee in the event of certain customary circumstances, including in circumstances involving a competing offer, as well as a $50 million termination fee in the event Conversant stockholders did not approve the merger but no competing offer had been made, referred to as a “naked no vote.” The indicative terms also included a request that Mr. Giuliani waive his right to acceleration of his restricted stock awards, agree not to make a cash election in the merger and agree to a lock-up of the Alliance Data common stock he would receive in the merger.

On August 26, 2014, Gibson Dunn provided Akin Gump with proposed changes to the outline of indicative terms. These comments included deletion of the “force the vote” provision, inclusion of a fiduciary termination right on behalf of Conversant and inclusion of a right for the Conversant board of directors to change its recommendation in the event of an “intervening event.” Conversant proposed a $60 million termination fee in customary circumstances and deletion of any termination fee in the event of a “naked no vote.” Conversant reserved comment on the method of calculation of the per share consideration. Conversant indicated that Mr. Giuliani would be prepared to agree to the waiver of his right to acceleration of his restricted stock awards and a lock-up of Alliance Data common stock received in the merger upon entry into a mutually acceptable employment arrangement. No specific terms of any such employment arrangement were proposed.

On August 27, 2014, the Conversant board of directors, along with members of management and representatives of Morgan Stanley and Gibson Dunn, held a telephonic meeting. Alliance Data’s proposed additional terms, and Conversant’s initial comments thereto, were discussed in detail. There was an extensive discussion among the Conversant board of directors regarding the calculation of the consideration. The Conversant board of directors instructed Mr. Giuliani to propose to Alliance Data that the proposed collar be narrowed to 10%, which would give Conversant’s stockholders some opportunity to benefit from any significant increase in the value of Alliance Data stock after the announcement of a transaction while continuing to provide some downside protection. Later that day, Mr. Giuliani communicated that proposal to Mr. Heffernan, who agreed with the proposal.

Later on August 27, 2014, Akin Gump sent to Conversant a revised version of the outline of indicative terms. The revised proposal accepted Conversant’s changes regarding deletion of the “force the vote” provision, inclusion of a fiduciary termination right on behalf of Conversant, inclusion of a right for the Conversant board of directors to change its recommendation in the event of an “intervening event” and deletion of the “naked no-vote” fee. The revised proposal included a proposed termination fee of $90 million.

On August 28, 2014, Gibson Dunn sent a revised draft of the outline of terms to Akin Gump, which continued to propose a termination fee of $60 million. Later that day, representatives of Conversant, Gibson Dunn and Morgan Stanley held a telephonic meeting with representatives of Alliance Data, Akin Gump and Wells Fargo Securities, Alliance Data’s financial advisor, to discuss the revised indicative terms. The parties continued to disagree regarding the size of the termination fee and certain other matters.

 

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On August 31, 2014, Akin Gump sent a draft merger agreement to Gibson Dunn. On September 1, 2014, Gibson Dunn communicated to Akin Gump that it would not provide comments to the merger agreement until the termination fee had been resolved. In a telephonic meeting on September 2, 2014, Alliance Data indicated it would be prepared to accept a revised proposal by Conversant on certain other issues if Conversant would agree to a termination fee of $65 million.

On September 3, 2014, the Conversant board of directors, along with members of management and representatives of Morgan Stanley and Gibson Dunn, held a telephonic meeting at which the status of negotiations on the indicative terms and merger agreement were discussed. After discussion, the Conversant board of directors concluded that it would accept a termination fee of $65 million. Morgan Stanley reviewed its preliminary financial analyses and reported on the financial due diligence conducted on Alliance Data.

On September 3, 2014, Gibson Dunn provided detailed comments to the draft merger agreement to Akin Gump. On September 4, 2014, Akin Gump provided a draft voting agreement to Gibson Dunn. During the period from September 3, 2014 through September 11, 2014, representatives of Gibson Dunn and Akin Gump continued to negotiate the open items on the merger agreement and the voting agreement.

On September 5, 2014, the Alliance Data board of directors, with the assistance of members of management, representatives of Wells Fargo Securities and Akin Gump, held a telephonic meeting to review and discuss the proposed merger. After discussing the terms of the proposed merger agreement and the voting agreement, the Alliance Data board of directors voted unanimously to approve the merger agreement and the merger, subject only to final review and approval by the transaction committee of the Alliance Data board of directors to be held September 11, 2014.

On September 10, 2014, the Conversant board of directors, along with members of management and representatives of Morgan Stanley and Gibson Dunn, held a telephonic meeting. Representatives of Gibson Dunn reviewed with the Conversant board of directors the terms of the proposed merger agreement, including the mechanics of the no-shop provisions, Conversant’s and Alliance Data’s termination rights, Alliance Data’s matching rights and the voting agreement. Representatives of Gibson Dunn also reviewed the fiduciary duties of directors in connection with their consideration of the transaction. Representatives of Morgan Stanley reviewed their analysis of the consideration to be paid to the holders of Conversant common stock in the merger. Morgan Stanley rendered to the Conversant board of directors its oral opinion, subsequently confirmed by delivery of a written opinion dated September 10, 2014, that, as of such date and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the consideration to be received by holders of shares of Conversant common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Morgan Stanley is attached as Annex F to this proxy statement/prospectus and is incorporated herein by reference. Following the discussion, the Conversant board of directors concluded that the merger agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of the Conversant stockholders and voted unanimously to approve and adopt the merger agreement and recommend that Conversant stockholders approve the merger.

On September 11, 2014, the transaction committee of the Alliance Data board of directors, with the assistance of members of management and representatives of Wells Fargo Securities and Akin Gump, held a telephonic meeting to discuss the finalized terms of the proposed merger agreement and merger and following its discussion, gave the final approval contemplated by the Alliance Data board of directors at its September 5, 2014 meeting.

On September 11, 2014, Alliance Data and Conversant executed the merger agreement. Concurrently, Conversant’s directors and executive officers beneficially owning shares of, or securities convertible into or exercisable for, Conversant common stock representing approximately 6.5% of the outstanding shares of Conversant common stock on a fully-diluted basis, executed the voting agreement. On September 11, 2014, Alliance Data and Conversant announced the merger agreement and the proposed transaction with a joint press release. Mr. Giuliani entered into an agreement with Alliance Data, dated September 11, 2014, as amended on

 

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October 29, 2014, in which he agreed to waive acceleration of his shares of restricted stock upon consummation of the merger until such date as his employment with Alliance Data, following the merger, is terminated for any reason or he terminates his employment for good reason, as defined in the letter agreement. Mr. Giuliani also agreed to elect to receive the Base Consideration or to make a Stock Election in the merger. No further arrangements were made with respect to Mr. Giuliani’s employment by Alliance Data following the merger (other than Alliance Data’s agreement pursuant to the merger agreement to provide all Conversant employees that continue to be employed by Alliance Data following the merger with base salary, non-equity incentive compensation opportunities and employee benefits that are the same or greater than the base salary, non-equity incentive compensation opportunities and employee benefits provided by Conversant prior to the merger as described in “The Merger Agreement—Employee Matters”).

On September 12, 2014, Conversant notified Financial Buyer B that it would waive the “don’t ask/don’t waive” provision of the standstill agreement between Conversant and Financial Buyer B.

Alliance Data Board of Directors’ Approval

After careful consideration, Alliance Data’s board of directors and the managers of the Merger Subsidiary unanimously approved the merger agreement, and Alliance Data’s board of directors unanimously approved the issuance of Alliance Data common stock in the merger. The compensation committee of Alliance Data’s board of directors unanimously approved the grant of replacement equity awards to the holders of Conversant equity awards, as provided in the merger agreement. See “The Merger—Treatment of Conversant Stock Options and Other Equity Awards.”

Conversant Board of Directors’ Recommendation and Reasons for the Merger

At a meeting on September 10, 2014, the Conversant board of directors unanimously (1) determined that the merger is fair to, and in the best interests of, Conversant and its stockholders and declared the merger agreement and the merger advisable, (2) approved the merger agreement and the transactions contemplated thereby, including the merger, and (3) resolved to recommend the adoption of the merger agreement to Conversant stockholders.

In reaching this conclusion, the Conversant board of directors consulted with Conversant’s management, as well as its financial advisor and outside legal counsel, and considered the following factors:

 

    the Conversant board of directors’ familiarity with Conversant’s business, operations, financial condition, competitive position, business strategy and prospects, and general industry, economic and market conditions, including the inherent risks and uncertainties in Conversant’s business, in each case on a historical, current and prospective basis;

 

    the alternative to the merger agreement of remaining as an independent company, including the timing and likelihood of accomplishing performance goals associated with success as an independent company;

 

    the fact that Conversant’s inquiries to other parties that were considered most likely to be interested in a possible business combination with Conversant did not result in any proposal to acquire Conversant;

 

    the determination, based on discussions with management and Conversant’s financial advisor, that Alliance Data was the party most likely to be interested in acquiring Conversant at the highest price;

 

    the Conversant board of directors’ belief, based on representations by representatives of Alliance Data, that Alliance Data would not proceed in its negotiations with Conversant without exclusivity;

 

    that Conversant stockholders will be entitled to receive merger consideration that, subject to the adjustment and collar provisions described above, will have a value of $35.00 per share upon the closing of the merger, providing liquidity and certainty of value as compared to the uncertain future long-term value to stockholders that might not be realized if Conversant remained independent;

 

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    that the implied value of the merger consideration within the collar of $35.00 per share, represented a premium of approximately 31% to the closing price of Conversant common stock on September 10, 2014, the day prior to announcement and a 34% premium to the average closing price of Conversant’s stock for the 30 trading days ending on September 10, 2014;

 

    the then-current financial market conditions and the recent and historical market prices of Conversant common stock, including the market price performance of Conversant common stock relative to those of other industry participants over the last 12 months (see “Market Prices and Dividends and Other Distributions” for information about Conversant common stock prices since January 1, 2012);

 

    that the value of the merger consideration to be paid by Alliance Data to Conversant stockholders in the merger will be fixed within the collar and will increase to the extent the Parent Closing Trading Price exceeds the upper limit of the collar;

 

    that Conversant stockholders, immediately after completion of the merger, would hold approximately 7% of the outstanding shares of Alliance Data common stock and would have the opportunity to share in the future growth and expected synergies of the combined company while retaining the flexibility of selling all or a portion of those shares;

 

    the intended qualification of the merger as a reorganization within the meaning of Section 368(a) of the Code, as described in the section entitled “Material U.S. Federal Income Tax Consequences”;

 

    the fairness opinion rendered to the Conversant board of directors by Morgan Stanley, that as of September 10, 2014, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the consideration to be received by holders of shares of Conversant common stock pursuant to the merger agreement was fair from a financial point of view to such holders;

 

    the fact that Conversant stockholders may elect to receive the merger consideration in cash or in stock, subject to proration as provided in the merger agreement;

 

    the Conversant board of directors’ understanding of Alliance Data’s financial position and that the transaction is expected to be accretive to Alliance Data’s earnings in future periods, which would benefit the Conversant stockholders who receive shares of Alliance Data common stock in the merger;

 

    the fact that Alliance Data’s common stock has substantial liquidity in the public markets, giving Conversant stockholders who receive shares of Alliance Data common stock in the merger a high level of certainty of their ability to sell such shares of Alliance Data common stock in the market;

 

    the anticipated enhanced competitive position of the combined company in key markets as a result of the complementary businesses of Alliance Data and Conversant;

 

    the fact that the terms of the merger agreement were the product of arms-length negotiations between Conversant and its advisors, on the one hand, and Alliance Data and its advisors, on the other hand;

 

    the conditions to Alliance Data’s obligation to complete the merger, including the absence of a financing condition;

 

    the structure of the transaction as a merger, requiring approval by Conversant stockholders, which would provide a period of time prior to the closing of the merger during which an unsolicited Company Superior Proposal (as such term is defined in the merger agreement) could be made;

 

    Conversant’s ability, under certain circumstances, to furnish information to and conduct negotiations with a third party, if the Conversant board of directors determines in good faith that the third party has made a Company Takeover Proposal (as such term is defined in the merger agreement) that is, or would reasonably be expected to lead to, a Company Superior Proposal and Conversant’s ability to amend, or grant a waiver or release under, any standstill or similar agreement to permit such a party to make an offer to Conversant’s board;

 

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    the fact that the merger agreement permitted Conversant to waive the “don’t ask/don’t waive” provision of the only standstill agreement in effect with respect to Conversant;

 

    the ability of the Conversant board of directors, in connection with a Company Superior Proposal or Intervening Event (as such term is defined in the merger agreement), and subject to the terms of the merger agreement, to change its recommendation that Conversant stockholders approve the Merger Proposal;

 

    the ability of the Conversant board of directors, in connection with a Company Superior Proposal, and subject to the terms of the merger agreement, including payment of a $65 million termination fee, to terminate the merger agreement in order to enter into an agreement with respect to such Company Superior Proposal;

 

    the requirement that Conversant pay to Alliance Data a termination fee of $65 million, representing approximately 2.8% of the transaction value, if the merger agreement is terminated under certain specified circumstances;

 

    the belief of the Conversant board of directors that, based upon information provided by Conversant’s legal counsel and financial advisor, the termination provisions and termination fee would not, as a practical matter, prevent an interested third party from submitting an offer to acquire Conversant that could lead to a Company Superior Proposal;

 

    the fact that Conversant stockholders will be entitled to appraisal rights under Delaware law;

 

    the Conversant board of directors’ belief that a transaction with Alliance Data does not present any significant antitrust or similar regulatory issues in the U.S. or elsewhere; and

 

    the fact that the cash component of the merger consideration to be paid by Alliance Data will be funded from existing cash on hand and available borrowing capacity under Alliance Data’s committed credit agreement and will not require additional financing on the part of Alliance Data.

The Conversant board of directors also identified and considered a number of uncertainties, risks and other potentially negative factors, including the following:

 

    the risks and contingencies related to the announcement and pendency of the merger, including the impact on Conversant’s employees and its relationships with existing and prospective customers, suppliers and business partners, as well as other third parties;

 

    the conditions to Alliance Data’s obligation to complete the merger and the right of Alliance Data to terminate the merger agreement under certain specified circumstances;

 

    the risks and costs to Conversant if the merger is not completed, including the potential impact on Conversant’s stock price and the effect on its business relationships;

 

    the potential impact of the restrictions under the merger agreement on Conversant’s ability to take certain actions during the period prior to the completion of the merger (which may delay or prevent Conversant from undertaking business opportunities that may arise pending completion of the merger);

 

    the potential for diversion of management and employee attention and for increased employee attrition during the period prior to the completion of the merger, and the potential effect of these on Conversant’s business and relations with customers and suppliers;

 

    the fact that Conversant stockholders could receive merger consideration with a value of less than $35.00 per share if the Parent Closing Stock Price is less than $232.75;

 

    the fact that the Conversant stockholders, to the extent they receive cash consideration, will cease to participate in Conversant’s future earnings growth or benefit from any future increase in its value following the merger;

 

    the fact that Conversant stockholders, to the extent they receive stock consideration, will continue to be subject to the risks inherent in the industry and the public stock markets;

 

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    the fact that certain provisions of the merger agreement may have the effect of discouraging proposals for alternative acquisition transactions involving Conversant, including: (1) the restriction on Conversant’s ability to solicit proposals for alternative transactions, (2) the limitations on the Conversant board of directors’ ability to change its recommendation to Conversant stockholders regarding the merger, (3) the requirement that Conversant give Alliance Data notice of alternative acquisition proposals, and (4) the requirement that Conversant pay a termination fee of $65 million to Alliance Data in certain circumstances following the termination of the merger agreement;

 

    the risk that Conversant’s executive officers may have interests in the merger as individuals that are in addition to, or that may be different from, the interests of Conversant stockholders;

 

    the fees and expenses associated with completing the merger;

 

    the risk that the expected benefits of the combined company will not be achieved by Alliance Data;

 

    the risks associated with litigation challenging the merger;

 

    the risk that the merger will not qualify as a reorganization within the meaning of Section 368(a) of the Code, as described in the section entitled “Material U.S. Federal Income Tax Consequences” in the event that the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in the merger, which would mean that the receipt of both cash and stock consideration would be taxable to Conversant stockholders for U.S. federal income tax purposes upon receipt of the consideration; and

 

    the risks of the type and nature described above under “Risk Factors.”

The Conversant board of directors unanimously recommends that Conversant common stockholders vote “FOR” the Merger Proposal.

The foregoing discussion of the information and factors considered by the Conversant board of directors is not intended to be exhaustive, but includes the material information, factors and analyses considered by the Conversant board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Conversant board of directors did not find it useful to and did not attempt to quantify, rank or otherwise assign relative weights to these factors. The Conversant board of directors’ recommendation for the merger was made after considering the totality of the information and factors involved. In considering the factors described above, individual members of the Conversant board of directors may have given different weight to different factors.

Opinion of Financial Advisor to the Conversant Board of Directors

Conversant retained Morgan Stanley to provide Conversant with financial advisory services in connection with Conversant’s consideration of strategic alternatives, including a potential sale of Conversant, and to render a financial opinion in connection with a possible merger, sale or other strategic business combination. Conversant’s board of directors selected Morgan Stanley to act as Conversant’s financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Conversant’s industry, and its knowledge of Conversant’s business and affairs. At the meeting of Conversant’s board of directors on September 10, 2014, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of September 10, 2014, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the merger consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Morgan Stanley, dated as of September 10, 2014, is attached to this proxy statement/prospectus as Annex F. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by

 

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Morgan Stanley in rendering its opinion. Conversant encourages you to read the entire opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to Conversant’s board of directors and addresses only the fairness from a financial point of view of the consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement as of the date of the opinion. Morgan Stanley’s opinion did not in any manner address the prices at which shares of Conversant common stock or Alliance Data common stock would trade at any time in the future, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any officer, director or employee of Conversant, or any class of such persons. The opinion is addressed to the Conversant board of directors and does not constitute a recommendation to any stockholder of Conversant as to how to vote at the stockholders’ meeting to be held in connection with the transactions contemplated by the merger agreement, what elections to make with respect to the form of consideration to be received, or any other action with respect to the transactions contemplated by the merger agreement.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

    reviewed certain publicly available financial statements and other business and financial information of Conversant and Alliance Data, respectively;

 

    reviewed certain internal financial statements and other financial and operating data concerning Conversant and Alliance Data, respectively;

 

    reviewed certain financial projections prepared by the managements of Conversant and Alliance Data, respectively;

 

    reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the management of Conversant;

 

    discussed the past and current operations and financial condition and the prospects of Conversant, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Conversant;

 

    discussed the past and current operations and financial condition and the prospects of Alliance Data with senior executives of Alliance Data;

 

    reviewed the pro forma impact of the merger on Alliance Data’s earnings per share and consolidated capitalization;

 

    reviewed the reported prices and trading activity for Conversant common stock and Alliance Data common stock;

 

    compared the financial performance of Conversant and Alliance Data and the prices and trading activity of Conversant common stock and Alliance Data common stock with that of certain other publicly-traded companies comparable with Conversant and their securities;

 

    reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

    participated in certain discussions and negotiations among representatives of Conversant and Alliance Data and their financial and legal advisors;

 

    reviewed a draft of the merger agreement dated September 10, 2014, and certain related documents; and

 

    performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by Conversant and Alliance Data, and formed a substantial basis for its opinion.

 

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With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Conversant and Alliance Data of the future financial performance of Conversant and Alliance Data. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a reorganization, pursuant to the Internal Revenue Code of 1986, as amended. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley assumed that the final form of the merger agreement would not differ in any respect material to its views set forth in the opinion from the draft of the merger agreement provided to Morgan Stanley on September 10, 2014. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Conversant and its advisors with respect to legal, tax, or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Conversant’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of Conversant common stock in the transaction. Morgan Stanley’s opinion did not address the relative merits of the merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Conversant or Alliance Data, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of September 10, 2014. Events occurring after September 10, 2014 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated September 10, 2014. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. The various analyses summarized below were based on the closing price of $26.67 per share of Conversant common stock and of $245.64 per share of Alliance Data common stock as of September 9, 2014, the last full trading day prior to the meeting of Conversant’s board of directors to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

The consideration to be received for shares of Conversant common stock in the merger may, subject to elections by holders of such shares, constitute all cash, all shares of Alliance Data common stock or a mix of cash and shares of Alliance Data common stock. As discussed elsewhere in this Proxy Statement/prospectus, the mix of form of consideration available to holders of Conversant common stock is subject to proration and the value of such consideration is subject to adjustment. References in the description of the financial analyses performed by Morgan Stanley below to a consideration of $35.00 per share of Conversant common stock reflect the value to be received based on the volume weighted average price per share of the Alliance Data common stock for the fifteen trading day period ending on the second trading day preceding the date of closing of the merger and do not reflect any adjustment to the value of the consideration which may occur based upon the minimum and maximum cash amount limitations which may apply pursuant to the terms of the merger agreement.

 

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Trading Range Analysis

Conversant—Trading Range Analysis

Morgan Stanley performed a trading range analysis with respect to the historical share prices of Conversant common stock. Morgan Stanley reviewed the range of closing prices of Conversant common stock for various periods ending on September 9, 2014. Morgan Stanley observed the following:

 

Period Ending September 9, 2014

   Range of Closing
Prices
 

Last 30 Days

   $ 25.16 – 27.54   

Last 90 Days

   $ 23.37 – 27.54   

Last 180 Days

   $ 23.27 – 28.56   

Last 52 Weeks

   $ 19.00 – 28.56   

Morgan Stanley observed that Conversant common stock closed at $26.67 on September 9, 2014 (the last full trading day prior to the meeting of Conversant’s board of directors to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby). Morgan Stanley noted that the consideration per share of Conversant common stock of $35.00 pursuant to the merger agreement reflected a 31% premium to the closing price per share of Conversant common stock on September 9, 2014 and a 34% premium to the average closing price per share of Conversant common stock for the 30 trading days prior to and including September 9, 2014.

Alliance Data—Trading Range Analysis

Morgan Stanley performed a trading range analysis with respect to the historical share prices of Alliance Data common stock. Morgan Stanley reviewed the range of closing prices of Alliance Data common stock for various periods ending on September 9, 2014. Morgan Stanley observed the following:

 

Period Ending September 9, 2014

   Range of Closing
Prices
 

Last 30 Days

   $ 245.64 – 268.22   

Last 90 Days

   $ 245.64 – 284.89   

Last 180 Days

   $ 233.67 – 294.27   

Last 52 Weeks

   $ 202.92 – 294.27   

Equity Research Analysts’ Future Price Targets

Morgan Stanley reviewed and analyzed future public market trading price targets for Conversant common stock and Alliance Data common stock prepared and published by equity research analysts prior to September 9, 2014 (the last full trading day prior to the meeting of Conversant’s board of directors to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby). These one year forward targets reflected each analyst’s estimate of the future public market trading price of Conversant common stock and Alliance Data common stock and were not discounted to reflect present values.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Conversant common stock or Alliance Data common stock, and these estimates are subject to uncertainties, including the future financial performance of Conversant and Alliance Data, and future financial market conditions.

Conversant—Equity Research Analysts’ Future Price Targets

The range of undiscounted analyst price targets for Conversant common stock was $22.00 to $28.00 per share as of September 9, 2014, and Morgan Stanley noted that the median undiscounted analyst price target was

 

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$24.50 per share. The range of analyst price targets per share for Conversant common stock discounted for one year at a rate of 9.6% to reflect Conversant’s cost of equity was $20.08 to $25.55 per share as of September 9, 2014.

Alliance Data—Equity Research Analysts’ Future Price Targets

The range of undiscounted analyst price targets for Alliance Data common stock was $270.00 to $350.00 per share as of September 9, 2014, and Morgan Stanley noted that the median undiscounted analyst price target was $310.00 per share. The range of analyst price targets per share for Alliance Data common stock discounted for one year at a rate of 8.8% to reflect Alliance Data’s cost of equity was $248.23 to $321.79 per share as of September 9, 2014.

Public Trading Comparables Analysis

Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded.

Conversant—Public Trading Comparables Analysis

Morgan Stanley compared certain financial estimates for Conversant with comparable publicly available consensus equity analyst research estimates for selected companies that share similar business characteristics such as those that provide internet or ad tech solutions and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (Conversant refers to these companies as the Conversant comparable companies). These companies were the following:

 

    AOL Inc.

 

    Bankrate, Inc.

 

    comScore, Inc.

 

    Demand Media, Inc.

 

    Groupon, Inc.

 

    IAC/InterActiveCorp

 

    Marchex, Inc.

 

    Orbitz Worldwide, Inc.

 

    QuinStreet, Inc.

 

    Vistaprint N.V.

 

    WebMD Health Corp.

 

    Web.com Group, Inc.

For purposes of this analysis, Morgan Stanley analyzed the ratio of aggregate value, which Morgan Stanley defined as fully diluted market capitalization plus total debt less cash and cash equivalents, to estimated EBITDA for calendar years 2014 and 2015, and analyzed price per share to estimated earnings per share for calendar year 2015, of each of the Conversant comparable companies for comparison purposes.

Based on its analysis of the relevant metrics for each of the Conversant comparable companies and upon the application of its professional judgment, Morgan Stanley selected representative ranges of aggregate value to EBITDA and price per share to earnings per share multiples and applied these ranges of multiples to the estimated EBITDA and earnings per share for Conversant. For purposes of this analysis and other analyses described below,

 

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Morgan Stanley utilized two sources of estimated EBITDA for Conversant for calendar years 2014 and 2015 and earnings per share for calendar year 2015. Morgan Stanley utilized publicly available estimates of EBITDA and earnings per share prepared by equity research analysts, available as of September 9, 2014, which Conversant refers to as the Conversant street case. Morgan Stanley also utilized EBITDA and earnings per share estimates prepared by Conversant’s management over the same time period, which Conversant refers to as the Conversant management case, which are more fully described in “—Projected Financial Information of Conversant.”

Based on the outstanding shares of Conversant common stock on a fully diluted basis (including outstanding options and unvested restricted stock awards) as of August 29, 2014, Morgan Stanley calculated the estimated implied value per share of Conversant common stock as of September 9, 2014 as follows:

 

Calendar Year Financial Statistic

   Comparable Company
Multiple Range
   Implied Value
Per Share of
Conversant
Common Stock

Conversant Street Case

     

Aggregate Value to Estimated 2014 EBITDA

   7.0x – 11.0x    $22.25 – $34.74

Aggregate Value to Estimated 2015 EBITDA

   6.0x – 9.0x    $21.23 – $31.65

Price per Share to Estimated 2015 Earnings per Share

   12.0x –18.0x    $24.12 – $36.18

Conversant Management Case

     

Aggregate Value to Estimated 2014 EBITDA

   7.0x – 11.0x    $22.22 – $34.69

Aggregate Value to Estimated 2015 EBITDA

   6.0x – 9.0x    $21.63 – $32.25

Price per Share to Estimated 2015 Earnings per Share

   12.0x –18.0x    $24.99 – $37.48

Alliance Data—Public Trading Comparables Analysis

Morgan Stanley compared certain financial estimates for Alliance Data with comparable publicly available consensus equity analyst research estimates for selected companies that share similar business characteristics such as those that provide data-driven credit, marketing and loyalty solutions and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (Conversant refers to these companies as the Alliance Data comparable companies). These companies were the following:

Private Label Comparables

 

    Blackhawk Network Holdings, Inc.

 

    FleetCor Technologies, Inc.

 

    Heartland Payment Systems, Inc.

 

    WEX Inc.

Epsilon Comparables

 

    Acxiom Corporation

 

    Equifax Inc.

 

    Experian plc

 

    Fair Isaac Corporation

 

    Nielsen N.V.

 

    Sapient Corporation

 

    Verisk Analytics, Inc.

Loyalty Comparable

 

    Aimia Inc.

 

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For purposes of this analysis, Morgan Stanley analyzed the ratio of price per share to estimated earnings per share for calendar years 2014 and 2015 of each of the Alliance Data comparable companies for comparison purposes.

Based on its analysis of the relevant metrics for each of the Alliance Data comparable companies and upon the application of its professional judgment, Morgan Stanley selected representative ranges of price per share to earnings per share multiples and applied these ranges of multiples to the estimated earnings per share for Alliance Data. For purposes of this analysis and other analyses described below, Morgan Stanley utilized two sources of estimated earnings per share for Alliance Data for calendar years 2014 and 2015. Morgan Stanley utilized publicly available estimates of earnings per share prepared by equity research analysts, available as of September 9, 2014, which Conversant refers to as the Alliance Data street case. Morgan Stanley also utilized earnings per share estimates prepared by Alliance Data’s management over the same time period, which Conversant refers to as the Alliance Data management case.

Based on the outstanding shares of Alliance Data common stock on a fully diluted basis (including outstanding options, assumed conversion of convertible note warrants and unvested restricted stock units) as of July 30, 2014, Morgan Stanley calculated the estimated implied value per share of Alliance Data common stock as of September 9, 2014 as follows:

 

Calendar Year Financial Statistic

   Comparable Company
Multiple Range
   Implied Value
Per Share of Alliance
Data
Common Stock

Alliance Data Street Case

     

Price to Estimated 2014 Earnings per Share

   19.0x – 24.0x    $236.17 – $298.32

Price to Estimated 2015 Earnings per Share

   16.0x – 21.0x    $233.60 – $306.60

Alliance Data Management Case

     

Price to Estimated 2014 Earnings per Share

   19.0x – 24.0x    $234.65 – $296.40

Price to Estimated 2015 Earnings per Share

   16.0x – 21.0x    $224.00 – $294.00

Discounted Equity Value Analysis

Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the estimated future value of a company’s common equity as a function of the company’s estimated future earnings per share and a potential range of price per share to earnings per share multiples. The resulting value is subsequently discounted to arrive at a present value for such company’s stock price.

Conversant—Discounted Equity Value Analysis

Morgan Stanley calculated a range of present equity values per share of Conversant common stock on a standalone basis. To calculate the discounted equity value, Morgan Stanley used calendar year 2017 earnings per share estimates which were derived by extrapolating from the 2016 calendar year earnings per share estimates set forth in the Conversant street case and Conversant management case. Morgan Stanley applied a range of price per share to earnings per share multiples, selected by application of Morgan Stanley’s professional judgment, to these estimates and applied a discount rate of 9.6%, which is the mid-point of the range of discount rates from 8.6% to 10.6% selected by Morgan Stanley, upon the application of its professional judgment, to reflect Conversant’s cost of equity.

 

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The following table summarizes Morgan Stanley’s analysis of Conversant:

 

     Comparable Company
Representative
Multiple Range
   Implied Present
Value Per
Share of Conversant
Common Stock

Calendar Year 2017 Estimated Earnings per Share

     

Conversant Street Case

   12.0x – 18.0x    $24.05 – $36.08

Conversant Management Case

   12.0x – 18.0x    $24.95 – $37.42

Alliance Data—Discounted Equity Value Analysis

Morgan Stanley calculated a range of present equity values per share of Alliance Data common stock on a standalone basis. To calculate the discounted equity value, Morgan Stanley used calendar year 2017 earnings per share estimates which were derived by extrapolating from the 2016 calendar year earnings per share estimates set forth in the Alliance Data street case and extrapolating from the 2015 calendar year earnings per share estimates set forth in the Alliance Data management case. Morgan Stanley applied a range of price per share to earnings per share multiples, selected by application of Morgan Stanley’s professional judgment, to these estimates and applied a discount rate of 8.8%, which is the mid-point of the range of discount rates from 7.8% to 9.8% selected by Morgan Stanley, upon the application of its professional judgment, to reflect Alliance Data’s cost of equity.

The following table summarizes Morgan Stanley’s analysis of Alliance Data:

 

     Comparable Company
Representative
Multiple Range
   Implied Present
Value Per
Share of Alliance
Data Common Stock

Calendar Year 2017 Estimated Earnings per Share

     

Alliance Data Street Case

   16.0x – 21.0x    $239.24 – $314.01

Alliance Data Management Case

   16.0x – 21.0x    $218.78 – $287.14

Discounted Cash Flow Analysis

Morgan Stanley calculated a range of equity values per share for Conversant common stock and Alliance Data common stock based on a discounted cash flow analysis to value each company as a standalone entity. Morgan Stanley utilized estimates from the street case and management case for each respective company. For purposes of its discounted cash flow analysis, Morgan Stanley defined unlevered free cash flow as earnings before interest, taxes, depreciation and amortization, less (1) stock based compensation expense, (2) taxes and (3) capital expenditures, plus change in working capital.

Conversant—Discounted Cash Flow Analysis

For the analysis utilizing the Conversant street case, projections were based on publicly available estimates through 2016 prepared by equity research analysts, available as of September 9, 2014, and estimates for 2017 through 2024 were developed by an extrapolation of 2016 estimates to reach steady state margin and growth profile by 2024. With respect to the analysis utilizing the Conversant management case, projections through 2016 were based on management projections, and projections for 2017 through 2024 were developed by an extrapolation of 2016 estimates in the management projections based on 2016 growth and margin performance in the Conversant management cases to reach a steady state margin and growth profile by 2024. Morgan Stanley calculated the net present value of free cash flows for Conversant for the mid fourth quarter 2014 stub period through 2024 and calculated terminal values in the year 2024 based on a terminal perpetual growth rate ranging from 1.5% to 3.0%. Morgan Stanley selected these terminal perpetual growth rates based on the application of its

 

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professional judgment. These values were discounted to present values as of November 15, 2014 at a discount rate ranging from 8.4% to 10.3%, which range of discount rates were selected, upon the application of Morgan Stanley’s professional judgment, to reflect Conversant’s weighted average cost of capital.

The following table summarizes Morgan Stanley’s analysis of Conversant applying a 9.4% discount rate:

 

     Implied Present
Value Per
Share of Conversant
Common Stock

Conversant Street Case

   $30.20 – $34.00

Conversant Management Case

   $33.17 – $37.42

Alliance Data—Discounted Cash Flow Analysis

For the analysis utilizing the Alliance Data street case, projections were based on publicly available estimates through 2016 prepared by equity research analysts, available as of September 9, 2014, and estimates for 2017 through 2024 were developed by an extrapolation of 2016 estimates to reach steady state margin and growth profile by 2024. With respect to the analysis utilizing the Alliance Data management case, projections through 2015 were based on management projections, and projections for 2016 through 2024 were developed by an extrapolation of 2015 estimates in the management projections based on 2015 growth and margin performance in the management cases to reach a steady state margin and growth profile by 2024. Morgan Stanley calculated the net present value of free cash flows for Alliance Data for the mid fourth quarter 2014 stub period through 2024 and calculated terminal values in the year 2024 based on a terminal perpetual growth rate ranging from 1.5% to 3.0%. Morgan Stanley selected these terminal perpetual growth rates based on the application of its professional judgment. These values were discounted to present values as of November 15, 2014 at a discount rate ranging from 6.3% to 7.7%, which range of discount rates were selected, upon the application of Morgan Stanley’s professional judgment, to reflect Alliance Data’s weighted average cost of capital.

The following table summarizes Morgan Stanley’s analysis of Alliance Data applying a 7.0% discount rate:

 

     Implied Present
Value Per
Share of Alliance Data
Common Stock

Alliance Data Street Case

   $271.08 – $364.60

Alliance Data Management Case

   $252.28 – $341.62

Analysis of Precedent Transactions – Financial Multiples

Morgan Stanley performed a precedent financial multiples transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and financial multiples of selected transactions. Morgan Stanley selected such comparable transactions because they shared certain characteristics with the merger. In connection with its analysis, Morgan Stanley compared publicly available statistics for internet sector transactions with a value of greater than $300 million occurring between January 1, 2007 and September 9, 2014.

For each transaction included in this analysis, Morgan Stanley noted the multiple of aggregate value of the transaction to last twelve months and next twelve months estimated EBITDA.

 

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Based on its analysis of the relevant metrics and time frame for each of the selected transactions and upon the application of its professional judgment, Morgan Stanley selected representative ranges of implied financial multiples of the transactions and applied these ranges of premia to the relevant financial statistic for Conversant. For purposes of estimated next twelve months EBITDA, Morgan Stanley utilized estimates included in the street case. The following table summarizes Morgan Stanley’s analysis:

 

Precedent Transactions Financial Statistic

   Representative
Range
   Implied Value
Per Share of
Conversant Common
Stock

Conversant Street Case

     

Aggregate Value to Last Twelve Months EBITDA

   8.0x – 13.0x    $25.79 – $41.67

Aggregate Value to Estimated Next Twelve Months EBITDA

   7.0x – 12.0x    $23.24 – $39.56

Analysis of Precedent Transactions – Trading Premia

Morgan Stanley performed a precedent trading premia transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premia of selected transactions. Morgan Stanley selected such comparable transactions because they shared certain characteristics with the merger. In connection with its analysis, Morgan Stanley compared publicly available statistics for select technology sector transactions with a value of greater than $300 million occurring between January 1, 2011 and September 9, 2014.

For each transaction included in this analysis, Morgan Stanley noted the following financial statistics where available: (1) implied premium to the acquired company’s closing share price on the last trading day prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news); (2) implied premium to the acquired company’s 30 trading day average closing share price prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news); and (3) the implied premium to the acquired company’s 52 week high closing share price prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news).

Based on its analysis of the relevant metrics and time frame for each of the selected transactions and upon the application of its professional judgment, Morgan Stanley selected representative ranges of implied premia of the transactions and applied these ranges of premia to Conversant’s closing price of $26.67 per share of common stock on September 9, 2014. The following table summarizes Morgan Stanley’s analysis:

 

Precedent Transactions Financial Statistic

   Representative
Range
   Implied Value
Per Share of
Conversant Common
Stock

Premia

     

Premium to 1-Day Prior Closing Share Price

   17.0% – 41.0%    $31.20 – $37.60

Premium to 30-Day Average Closing Share Price

   24.0% – 41.0%    $32.32 – $36.75

Premium to 52-Week High Closing Share Price

   (2.0%) – 15.0%    $27.99 – $32.84

No company or transaction utilized in the precedent transactions analysis is identical to Conversant or the merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, which are beyond Conversant’s control, such as the impact of competition on Conversant’s business or the industry generally, industry growth and the absence of any adverse material change in Conversant’s financial condition or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared.

 

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Leveraged Buyout Analysis

Morgan Stanley performed an illustrative leveraged buyout analysis to estimate the theoretical prices at which a financial sponsor might effect a leveraged buyout of Conversant. For purpose of this analysis, Morgan Stanley assumed a transaction date of December 31, 2014 and an illustrative multiple of debt to last-twelve-months EBITDA at the transaction date of from 5.5x to 6.5x. Morgan Stanley also assumed a subsequent exit transaction by the financial sponsor at December 31, 2019 with a valuation of the company realized by the financial sponsor in such subsequent exit transaction based on a 9.0x aggregate value to last-twelve-months EBITDA multiple and the company’s estimated total debt and cash as of December 31, 2014. Morgan Stanley utilized projections from the street case and management case for Conversant in performing its analysis. The implied acquisition price per share paid by the financial sponsor was based on a hypothetical target range of internal rates of return for the financial sponsor between December 31, 2014 and December 31, 2019 of 20.0%–25.0%. The following table summarizes Morgan Stanley’s analysis:

 

     Implied Present
Value Per
Share of Conversant
Common Stock

Conversant Street Case

   $26.66 – $30.66

Conversant Management Case

   $28.18 – $32.51

Relative Implied Exchange Ratio Analysis

Morgan Stanley also performed an implied exchange ratio analysis which reviewed implied exchange ratios based on certain analyses for Conversant and Alliance Data compared to an estimated “all-stock” exchange ratio. Such analyses included in this implied exchange ratio analysis include various average trading day closing price ranges, analyst price targets, discounted equity value analysis, discounted cash flow analysis and relative operating metrics. Valuation implied exchange ratios were calculated by estimated share prices for Conversant common stock and Alliance Data common stock based on the metrics and analyses below and dividing the applicable implied Conversant common stock price by the implied Alliance Data common stock price. Relative contribution implied exchange ratios were calculated as the relative contribution of estimated street operating metrics for Conversant and Alliance Data as if they were indicative of ownership percentages in the merged company.

The computations resulted in the following relative implied exchange ratios:

 

Valuation Implied Exchange Ratios

  Low   High

Historical 30-Day Average Closing Share Price

  0.088x   0.109x

Historical 60-Day Average Closing Share Price

  0.087x   0.109x

Historical 90-Day Average Closing Share Price

  0.087x   0.109x

Historical 180-Day Average Closing Share Price

  0.079x   0.109x

Analyst Price Targets

  0.063x   0.104x

Discounted Equity Value Analysis – Street Cases

  0.077x   0.151x

Discounted Equity Value Analysis – Management Cases

  0.087x   0.171x

Discounted Cash Flow Analysis – Street Cases

  0.083x   0.125x

Discounted Cash Flow Analysis – Management Cases

  0.097x   0.148x

Relative Contribution Implied Exchange Ratios

  2014 Street Cases   2015 Street Cases

Revenue

  0.106x   0.105x

EBITDA

  0.122x   0.118x

Net Income

  0.141x   0.138x

 

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General

In connection with the review of the merger by Conversant’s board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Conversant or Alliance Data. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond Conversant’s control. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement and in connection with the delivery of its opinion, dated September 10, 2014, to Conversant’s board of directors. These analyses do not purport to be appraisals or to reflect the prices at which shares of Conversant common stock or Alliance Data common stock might actually trade.

The consideration to be received by the holders of shares of Conversant common stock pursuant to the merger agreement was determined through arm’s length negotiations between Conversant and Alliance Data and was approved by Conversant’s board of directors. Morgan Stanley provided advice to Conversant’s board of directors during these negotiations. Morgan Stanley did not, however, recommend any specific consideration to Conversant or Conversant’s board of directors or that any specific consideration constituted the only appropriate consideration for the merger.

Morgan Stanley’s opinion and its presentation to Conversant’s board of directors was one of many factors taken into consideration by Conversant’s board of directors in deciding to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the opinion of Conversant’s board of directors with respect to the consideration pursuant to the merger agreement or of whether Conversant’s board of directors would have been willing to agree to different consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Conversant’s board of directors retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. In the ordinary course of Morgan Stanley’s trading, brokerage, investment management and financing activities, Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, or may trade or otherwise structure and effect transactions, for their own account or for the accounts of their customers, in the debt or equity securities or loans of Conversant and Alliance Data or any other company, or any currency or commodity, that may be involved in the transactions contemplated by the merger agreement, or any related derivative instrument.

 

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Under the terms of its engagement letter, Morgan Stanley provided Conversant financial advisory services and a financial opinion, described in this section and attached to this proxy statement/prospectus as Annex F, in connection with the merger, and Conversant has agreed to pay Morgan Stanley a fee of approximately $27 million for its services, $22 million of which is contingent upon the closing of the transaction. Conversant has also agreed to reimburse Morgan Stanley for its expenses, including reasonable fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, Conversant has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses relating to or arising out of Morgan Stanley’s engagement. In the two years prior to the date of its opinion rendered in connection with the merger, other than the services described in this proxy statement/prospectus, Morgan Stanley has not provided financial advisory services or financing services for Conversant or Alliance Data. Morgan Stanley may seek to provide such services to Conversant and Alliance Data in the future and would expect to receive fees for the rendering of these services.

Projected Financial Information of Conversant

Conversant does not as a matter of course make public projections as to future performance, earnings or other results beyond the current fiscal year due to the unpredictability of the underlying assumptions and estimates. However, as described under the heading “Opinion of Financial Advisor to the Conversant Board of Directors,” Conversant provided to Morgan Stanley for use in connection with the rendering of its fairness opinion to the Conversant board and performing its related financial analysis, Conversant management’s internal non-public three-year financial forecasts regarding Conversant’s anticipated future operations, or the Projections. Conversant’s management also provided the portion of the Projections covering 2014 and 2015 to Alliance Data in connection with its due diligence review. Conversant has included below a summary of the Projections to give its stockholders access to certain non-public information because such information was considered by Morgan Stanley for purposes of rendering its opinion and, in the case of the Projections for 2014 and 2015, was also provided to Alliance Data. The summary of the Projections below is not being included in this proxy statement/prospectus to influence a Conversant stockholder’s decision whether to vote in favor of the merger.

The Projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or generally accepted accounting principles. The Projections were prepared by, and are the responsibility of, Conversant’s management. PricewaterhouseCoopers, LLP, Conversant’s independent registered public accounting firm, has neither examined, compiled, nor performed any procedures with respect to, the Projections and accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. In addition, neither Alliance Data’s independent registered public accounting firm, nor any other independent auditors or accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The PricewaterhouseCoopers LLP report incorporated by reference in this joint proxy statement/prospectus relates to Conversant’s historical financial information. It does not extend to the prospective financial information and should not be read to do so.

The Projections, while presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the control of Conversant’s management. These variables and assumptions may therefore not prove to be accurate, or other factors could affect Conversant’s actual financial conditions or results of operations. Because the Projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions in early periods have a compounding effect on the projections shown for the later periods. Thus, any failure of an assumption to be reflective of actual results in an early period would have a greater effect on the projected results failing to be reflective of actual events in later periods. The assumptions upon which the Projections were based

 

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necessarily involve judgments with respect to, among other things, future economic, competitive and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond Conversant’s control. The Projections also reflect assumptions as to certain business decisions that are subject to change. Important factors that may affect actual results and result in the Projections not being achieved include, but are not limited to, Conversant’s ability to adapt its products, services and cost structure to changing macroeconomic conditions; maintain and increase its inventory of advertising space on publisher websites, ad exchanges and other sources; maintain and increase the number of advertisers that use its products and services; continue to expand the number of products and services it offers and the capacity of its systems; adapt to changes in digital advertisers’ marketing needs and policies, and the technologies used to generate digital advertisements; respond to challenges presented by the large and increasing number of competitors in the industry; respond to challenges presented by the continuing consolidation within its industry; adapt to changes in legislation, taxation or regulation regarding Internet usage, advertising and e-commerce; and adapt to changes in technology related to advertising filtering software; and other risks and uncertainties described in Conversant’s annual report on Form 10-K for the year ended December 31, 2013, subsequent quarterly reports on Form 10-Q, and current reports on Form 8-K. In addition, the Projections may be affected by Conversant’s ability to achieve strategic goals, objectives and targets over the applicable period. This information constitutes “forward-looking statements” and actual results may differ materially and adversely from them. See the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Accordingly, there can be no assurance that the Projections will be realized, and actual results may vary materially from those shown. The inclusion of the Projections in this proxy statement/prospectus should not be regarded as an indication that Conversant or any of its affiliates, advisors or representatives considered or consider the Projections to be predictive of actual future events, and the Projections should not be relied upon as such. Neither Conversant nor any of its affiliates, advisors, officers, directors or representatives can give any assurance that actual results will not differ from the Projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the Projections to reflect circumstances existing after the date the Projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Projections are shown to be in error. Conversant does not intend to make publicly available any update or other revision to the Projections, except as otherwise required by law. Neither Conversant nor any of its affiliates, advisors, officers, directors or representatives has made or makes any representation to any Conversant stockholder or other person regarding the ultimate performance of Conversant compared to the information contained in the Projections or that the Projections will be achieved. Conversant has made no representation to Alliance Data in the Merger Agreement or otherwise, concerning the Projections. A joint press release by Alliance Data and Conversant announcing the merger stated that Conversant projections for 2015 are revenue of $670 million (+8 percent) and adjusted EBITDA of $230 million, or mid-30 percent adjusted EBITDA margins, and that organic revenue and adjusted EBITDA growth rates have trended in the high single-digits range in the past with similar expectations for the near term.

In light of the foregoing factors and the uncertainties inherent in the Projections, Conversant’s stockholders are cautioned not to place undue, if any, reliance on the Projections.

The following is a summary of the Projections:

Conversant Projected Financial Information (dollar amounts are in thousands; all amounts are approximate)

 

     Years ending December 31,  
     2014      2015      2016  

Total revenue

     617,400         688,000         768,000   

Operating income

     198,600         226,500         256,000   

Adjusted EBITDA(1)

     211,429         240,000         269,000   

Non-GAAP net income(2)

     119,466         137,440         155,830   

 

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(1) Adjusted EBITDA is defined as net income before interest and other expense (income), net, income tax expense, depreciation and amortization and stock based compensation expense.
(2) Non-GAAP net income is defined as net income before the tax affected impact of amortization of intangible assets and stock based compensation expense.

Interests of Directors and Executive Officers of Conversant in the Merger

In considering the recommendations of the Conversant board of directors with respect to its approval of the merger agreement and its unanimous recommendation that Conversant stockholders vote FOR the approval of the Merger Proposal, Conversant stockholders should be aware that Conversant’s executive officers and directors have interests in the merger that are different from, or in addition to, those of Conversant stockholders generally. These interests relate to the treatment of equity-based compensation awards held by directors and executive officers of Conversant in the merger, provision of severance benefits, and the indemnification of Conversant’s directors and officers by Alliance Data.

Treatment of Conversant Stock Options and Other Equity Awards

At the effective time of the merger, each outstanding option of Conversant will be converted into an option to purchase, on the same terms and conditions as were applicable to such option immediately prior to the effective time of the merger, the number of shares of Alliance Data, rounded down to the nearest whole share, determined by multiplying the number of shares of Conversant common stock subject to such option by the Per Share Stock Election Consideration, at an exercise price per share of Alliance Data common stock, rounded up to the nearest whole cent, equal to the per-share exercise price for the shares of Conversant common stock otherwise purchasable pursuant to such option immediately prior to the effective time of the merger divided by the Per Share Stock Election Consideration.

The table below sets forth the outstanding options of each of Conversant’s directors and executive officers, along with the exercise price of such options. All outstanding options are vested and exercisable:

 

Name

   Number of Outstanding
Options (#)
     Exercise Price of Outstanding
Options ($)
 

John Giuliani

     105,117         1.11   

John Pitstick

     11,925         10.80   

John Pitstick

     25,000         16.88   

James R. Zarley

     343,750         12.87   

David S. Buzby

     25,000         12.87   

Jeffrey F. Rayport

     37,500         12.87   

At the effective time of the merger, each outstanding restricted stock award that is unvested immediately prior to the effective time of the merger (after giving effect to any vesting acceleration which occurs or would occur as a result of the closing of the merger) will be converted into a restricted stock award, on the same terms and conditions as were applicable to such restricted stock award immediately prior to the effective time of the merger, in respect of the number of shares of Alliance Data common stock, rounded down to the nearest whole share, determined by multiplying the number of shares of Conversant common stock subject to such restricted stock award by the Per Share Stock Election Consideration.

As described in the table below, certain grants of restricted stock awards to Messrs. Pitstick, Wolfert and Barlow are subject to accelerated vesting at the effective time of the merger. Additionally, all outstanding restricted stock awards held by Conversant’s directors immediately prior to the effective time of the merger will vest in full. Upon such accelerated vesting, the vested restricted stock units will be entitled to the same per share consideration described in “—Consideration to be Received in the Merger.”

 

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The table below sets forth the unvested restricted stock awards of each of Conversant’s directors and executive officers, along with the number and value of such awards that will vest in full pursuant to the terms of such award as a result of the merger:

 

Name

  Number of Shares of
Restricted Stock (#)
    Accelerated Shares of
Restricted Stock (#)(2)(3)
     Value of Accelerated
Restricted Stock ($)(4)
 

John Giuliani(1)

    297,500        0         0   

John Pitstick

    72,000        32,500         1,137,500   

Peter Wolfert

    70,000        32,500         1,137,500   

Scott Barlow

    62,500        28,750         1,006,250   

James R. Zarley

    43,073        43,073         1,507,555   

David S. Buzby

    19,573        19,573         685,055   

James A. Crouthamel

    19,573        19,573         685,055   

James R. Peters

    19,573        19,573         685,055   

Jeffrey F. Rayport

    19,573        19,573         685,055   

Brian Smith

    13,073        13,073         457,555   

 

(1) All grants of outstanding restricted stock awards held by Mr. Giuliani are subject to accelerated vesting in full upon a change in control. However, in connection with the merger, Mr. Giuliani entered into an agreement with Alliance Data to waive his right to acceleration, a copy of which agreement, as amended, is attached as Annex E to this proxy statement/prospectus. As such, Mr. Giuliani’s restricted stock awards will continue to vest over time in accordance with their existing terms (not taking any such acceleration into account) during any period in which he may be an employee of Alliance Data or any Alliance Data subsidiary immediately following the effective time of the merger. All unvested shares of Mr. Giuliani’s restricted stock will accelerate and vest in full immediately upon termination of his employment by Alliance Data or any Alliance Data subsidiary for any reason whatsoever or if he terminates his employment for good reason, as defined in the letter agreement.
(2) All grants of outstanding restricted stock awards held by Messrs. Pitstick, Wolfert and Barlow that were granted prior to October 27, 2011 will vest in full at the effective time of the merger. All grants of outstanding restricted stock awards held by Messrs. Pitstick, Wolfert and Barlow that were granted after October 27, 2011 and through October 30, 2013 will experience accelerated vesting as to 50% of the shares outstanding under the restricted stock award, and the remaining 50% will vest upon the earlier of the first anniversary of the effective date of the merger and the original vesting date. Upon a termination without cause (defined below) or a constructive termination (defined below) any time following the effective date of the merger, 100% of all outstanding equity held by each individual will vest in full.
(3) All grants of outstanding restricted stock awards held by the Conversant directors (Messrs. Zarley, Buzby, Crouthamel, Peters, Rayport and Smith) will vest in full immediately prior to the effective time of the merger.
(4) Amount is equal to the product of the number of shares of accelerated restricted stock multiplied by $35.00, which is the value of the merger consideration per share of Conversant common stock within the collar as described in “—Consideration to be Received in the Merger.”

For additional information regarding compensation that will be received by Conversant’s named executive officers in connection with the merger, see “—Golden Parachute Compensation” below.

Earning of Annual Bonus Payment

On September 10, 2014, the board of directors of Conversant confirmed that annual bonuses of $250,000 for the fiscal year 2014 be deemed earned in full for each of Messrs. Pitstick, Barlow and Wolfert based on their performance to date, including in connection with Conversant’s sale of its Owned and Operated segment, Conversant’s acquisition of SET Media, the rebranding of Conversant in the United States and Europe and the merger. These annual bonuses are payable upon the earlier of the effective time of the merger or the ordinary date on which such bonuses would be paid, which would be February 15, 2015.

 

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For additional information regarding compensation that will be received by Conversant’s named executive officers in connection with the merger, see “—Golden Parachute Compensation” below.

Severance under Existing Employment Agreements and Arrangements

Upon a termination without cause or a constructive termination following the effective date of the merger, Messrs. Pitstick, Wolfert and Barlow are each entitled to a lump sum payment equal to one year of base salary, and full acceleration of all outstanding equity awards. Upon a termination for any reason, whether or not a change in control occurs, Mr. Giuliani is entitled to payment of his COBRA payments for 18 months following termination.

A “constructive termination” is defined as a material reduction, without the individual’s written consent, in his then-current base salary or, for Messrs. Pitstick, Wolfert and Barlow, a relocation of his principal place of employment outside the contiguous 48 states of the United States of America. “Cause” is generally defined as the final conviction of a felony or a crime involving moral turpitude, the refusal to comply with reasonable directives of the board of directors of Conversant, negligence, recklessness, willful misconduct or failure to perform duties, misconduct materially negatively affecting Conversant’s reputation, or violation of Conversant’s policies.

For additional information regarding compensation that will be received by Conversant’s named executive officers in connection with the merger, see “—Golden Parachute Compensation” below.

Indemnification and Insurance

Under the merger agreement, from the effective time of the merger, Alliance Data and the surviving company in the merger must indemnify Conversant’s and its subsidiaries’ current and former directors and officers for all damages and other expenses relating to their status as a director or officer of Conversant (or any of its subsidiaries) whether asserted or claimed before or after the effective time of the merger, to the fullest extent permitted by law. Each such director or officer will be entitled to advancement of expenses, provided that any person seeking advancement of expenses provides an undertaking to repay such advances if it is ultimately determined by a final and nonappealable judicial determination that such person is not entitled to indemnification under the merger agreement or otherwise.

The merger agreement provides that, for six years after the effective time of the merger, the surviving company will, and Alliance Data will cause the surviving company to, maintain the indemnification, advancement of expenses and exculpation rights existing in favor of present and former directors, officers or employees of Conversant and its subsidiaries as contained in Conversant’s current organizational documents (and Conversant’s subsidiary organizational documents) or indemnification agreements in effect on September 11, 2014.

The merger agreement also provides that the surviving company will, and Alliance Data will cause the surviving company to, maintain in effect for six years from the effective time of the merger directors’ and officers’ liability insurance on terms at least as favorable to these individuals as Conversant’s existing directors’ and officers’ liability insurance policies with respect to events occurring at or prior to the effective time of the merger, provided that the annual premium does not exceed 250% of the current annual premium paid by Conversant. Conversant may purchase its own “tail” policy under its existing directors’ and officers’ liability insurance policy prior to the effective time of the merger, provided that the annual premium does not exceed 250% of the current annual premium paid by Conversant.

Golden Parachute Compensation

The merger is considered a change in control under Conversant’s equity incentive programs.

 

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The following table sets forth the estimated amounts of “golden parachute” compensation (for purposes of Item 402(t) of Regulation S-K) that each named executive officer of Conversant could receive in connection with the merger. These amounts assume, where applicable, that the named executive officer is entitled to the full amount of severance benefits for which he is eligible pursuant to the employment agreements, in the case of Messrs. Pitstick, Wolfert and Barlow, and the employment arrangement, in the case of Mr. Giuliani. Certain of the amounts payable may vary depending on the actual date on which the merger is completed and whether or not, and if so the circumstances under which, a named executive officer terminates employment. As a result, the actual amounts received by a named executive officer may differ in material respects from the amounts set forth below.

Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described below, and do not reflect certain compensation actions that may occur before the closing of the merger. For purposes of calculating such amounts, we have assumed:

 

    a price per share of Conversant common stock equal to $35.00, calculated as described above in “—Consideration to be Received in the Merger”;

 

    October 1, 2014 as the closing date of the merger and thus, the date of the “change in control” as used below; and

 

    a termination of each named executive officer’s employment under circumstances entitling the executive to severance immediately following the closing of the merger.

 

Name

   Cash ($)(1)      Equity ($)     Tax
Reimbursement
($)(4)
     Other ($)     Total ($)  

John Giuliani

     0         10,412,500 (2)      0         22,600 (5)      10,435,100   

John Pitstick

     325,000         2,520,000 (3)      0         250,000 (6)      3,095,000   

Peter Wolfert

     325,000         2,450,000 (3)      0         250,000 (6)      3,025,000   

Scott Barlow

     325,000         2,187,500 (3)      0         250,000 (6)      2,762,500   

 

(1) Represents “double-trigger” cash severance payable to each respective individual. As described above, pursuant to each individual’s respective employment agreement, each of Messrs. Pitstick, Wolfert and Barlow are entitled to one year of base salary, payable in a lump sum upon a termination without cause or constructive termination following a change in control.
(2) Represents the “double-trigger” value of Mr. Giuliani’s outstanding restricted stock awards. As described above, all grants of outstanding restricted stock awards held by Mr. Giuliani are subject to accelerated vesting in full upon a change in control. However, in connection with the merger, Mr. Giuliani entered into an agreement with Alliance Data to waive his right to acceleration, a copy of which agreement, as amended, is attached as Annex E to this proxy statement/prospectus. As such, Mr. Giuliani’s restricted stock awards shall continue to vest over time in accordance with their existing terms (not taking any such acceleration into account) during any period in which he may be an employee of Alliance Data or any Alliance Data subsidiary immediately following the effective time of the merger. All unvested shares of Mr. Giuliani’s restricted stock will accelerate and vest in full immediately upon termination of his employment by Alliance Data or any Alliance Data subsidiary for any reason following the effective time of the merger or if he terminates his employment for good reason, as defined in the letter agreement.
(3)

Represents the aggregate payments to be made in respect of unvested restricted stock awards upon closing of the merger, assuming a termination of each named executive officers’ employment under circumstances entitling the executive to accelerated vesting upon such termination. As described above, all grants of outstanding restricted stock awards held by Messrs. Pitstick, Wolfert and Barlow that were granted prior to October 27, 2011 will vest in full at the effective time of the merger. All grants of outstanding restricted stock awards held by Messrs. Pitstick, Wolfert and Barlow that were granted after October 27, 2011 and through October 30, 2013 will experience accelerated vesting as to 50% of the shares outstanding under the restricted stock award, and the remaining 50% will vest upon the earlier of the one year anniversary of the

 

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  effective date of the merger, and the original vesting date. Upon a termination without cause or a constructive termination at any time following the effective date of the merger, 100% of all outstanding equity held by each individual will vest in full. Set forth below are the values of each individual’s restricted stock awards that would vest (i) in connection with the merger (the “single-trigger” amounts), and (ii) in connection with a termination without cause or a constructive termination any time following the effective date of the merger (the “double-trigger” amounts). For the avoidance of doubt, the portion of restricted stock awards granted between October 27, 2011 and October 30, 2013 that do not vest immediately upon the closing of the merger, and are subject to continued employment through the earlier of the restricted stock award’s original vesting date and the one year anniversary of the effective date of the merger, are considered “double-trigger” awards and included in such column below.

 

Name

   “Single-Trigger”
Restricted Stock Awards ($)
     “Double-Trigger”
Restricted Stock Awards ($)
 

John Pitstick

     1,137,500         1,382,500   

Peter Wolfert

     1,137,500         1,312,500   

Scott Barlow

     1,006,250         1,181,250   

 

(4) Represents an estimate of the excise tax triggered under Section 4999 of the Code that the executives will be reimbursed for (i.e., “grossed-up”) in connection with their change in control payments. Based on the assumptions described in this table, it is estimated that no individual is expected to be subject to any excise tax under Section 4999 of the Code.
(5) Represents the “double-trigger” value of COBRA benefits payable to Mr. Giuliani in connection with Mr. Giuliani’s termination of employment.
(6) Represents the “single-trigger” value of the annual bonus that Conversant’s board of directors deemed earned on September 10, 2014 based on the performance of Messrs. Barlow, Pitstick and Wolfert prior to such date, including in connection with Conversant’s sale of its Owned and Operated segment, Conversant’s acquisition of SET Media, the rebranding of Conversant in the United States and Europe and the merger. This value is payable on the earlier of the effective time of the merger or the ordinary date on which such bonuses would be paid, which would be February 15, 2015.

Letter Agreement with John Giuliani

In connection with the execution of the merger agreement, Alliance Data entered into a letter agreement, dated September 11, 2014, as amended on October 29, 2014, with John Giuliani, Conversant’s President and Chief Executive Officer. A copy of the letter agreement is attached as Annex E to this proxy statement/prospectus.

Under the terms of the letter agreement, Mr. Giuliani agreed to waive the current terms of acceleration of vesting and lapsing of restrictions that would otherwise be applicable at the effective time of the merger to any outstanding and unvested shares of Conversant common stock issued pursuant to a Conversant restricted stock award and held by Mr. Giuliani as of the effective time of the merger. The waiver also applies to any shares of Alliance Data common stock that may be issued to Mr. Giuliani in exchange for such shares of restricted stock of Conversant in the merger. As a result, Mr. Giuliani’s unvested shares of restricted stock will not be accelerated in connection with the merger, and following the merger the shares of Alliance Data common stock issued in exchange for such shares of Conversant restricted stock at the effective time of the merger will continue to vest over time in accordance with the pre-merger terms (not taking acceleration into account) of the applicable award grant during any period in which Mr. Giuliani may be an employee of Alliance Data or any of its subsidiaries. All of Mr. Giuliani’s unvested shares of Alliance Data restricted stock issued in exchange for his unvested shares of Conversant restricted stock will accelerate and fully vest upon termination of his employment by Alliance Data or any of its subsidiaries for any reason, with or without cause, upon his death or disability, or upon his resignation for good reason, as defined in the letter agreement. Mr. Giuliani’s restricted stock will otherwise be treated the same as other Conversant restricted stock awards. See “—Treatment of Conversant Stock Options and Other Equity Awards.”

 

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Pursuant to the terms of the letter agreement, Mr. Giuliani also agreed to either (i) accept the Base Consideration or (ii) make a Stock Election for some or all of his shares of Conversant common stock (other than any unvested shares of Conversant restricted stock issued pursuant to a Conversant restricted stock award and held by Mr. Giuliani as of the effective time of the merger).

The letter agreement will terminate if the merger is not effected or if the merger agreement is terminated in accordance with its terms.

Accounting Treatment

Each of Alliance Data and Conversant prepares its financial statements in accordance with GAAP. The merger will be accounted for using the acquisition method of accounting with Alliance Data treated as the acquiror of Conversant for accounting purposes. This means that the assets, liabilities and commitments of Conversant, the accounting acquiree, are adjusted to their estimated fair value at the acquisition date. Under the acquisition method of accounting, definite-lived intangible assets are amortized over their remaining useful lives. Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually.

Financial statements of Alliance Data issued after the merger will reflect only the operations of Conversant after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of Conversant.

All unaudited pro forma condensed combined financial statements contained in this proxy statement/prospectus were prepared using the acquisition method of accounting. The final allocation of the purchase price will be determined after the merger is completed and after completion of an analysis to determine the fair value of Conversant’s assets and liabilities. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments. Any decrease in the fair value of the assets or increase in the fair value of the liabilities of Conversant as compared to the unaudited pro forma condensed combined financial information included in this proxy statement/prospectus will have the effect of increasing the amount of the purchase price allocable to goodwill.

Regulatory Approvals Required for the Merger

Each of Conversant and Alliance Data must use reasonable efforts to take and do all reasonable things necessary to consummate and make effective the merger, including, among other things, the preparation and filing of all forms, registrations and notices required to be filed to consummate the merger, the satisfaction of all conditions to consummate the merger, taking all reasonable actions necessary to obtain any consent, authorization or approval or exemption by any third party, including any governmental entity required to be obtained in connection with the merger, defending and seeking to prevent the initiation of all actions, suits and other proceedings by or before any governmental entity challenging the merger agreement or the consummation of the transactions contemplated thereby and the execution and delivery of any reasonable additional instruments necessary to consummate the merger.

The merger is subject to certain antitrust laws. Alliance Data, Conversant and Mr. Giuliani have made filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, referred to as the HSR Act, with the United States Department of Justice, Antitrust Division, or the Antitrust Division, and the United States Federal Trade Commission, or the FTC. The initial waiting period is 30 days after the filing of the notification and report forms – this period may be shortened if the FTC grants early termination or extended if the reviewing agency issues a formal request for additional information and documentary material, referred to as a second request. If the reviewing agency issues a second request, the parties may not complete the merger until 30 days after both parties substantially comply with the second request, unless the waiting period is terminated earlier. Alliance Data and Conversant each filed pre-merger notifications with the U.S. antitrust authorities pursuant to the HSR Act and, in accordance with the merger agreement, requested “early termination” of the waiting period, which request for “early termination” was granted on September 24, 2014. On September 24, 2014, Alliance Data and

 

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Mr. Giuliani each filed notifications pursuant to the HSR Act with respect to Mr. Giuliani’s receipt of Alliance Data common stock upon closing of the merger and requested “early termination” of the waiting period, which “early termination” was granted on October 3, 2014.

Alliance Data and Conversant are also required to file with the antitrust regulators in Germany. The companies submitted their notification to the Federal Cartel Office, or the FCO, in Germany on September 29, 2014. The FCO gave its authorization for the merger on October 15, 2014.

Alliance Data and Conversant have each agreed to use their reasonable best efforts to obtain all regulatory approvals required to complete the merger. In addition to requiring expiration of the HSR waiting period and its German counterpart, at any time before or after closing of the merger, the Antitrust Division, the FTC, or any state or foreign government could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the closing of the merger, to rescind the merger or to seek divestiture of particular assets held by the merging parties. Private parties also may seek to take legal action under the antitrust laws in certain circumstances. As in every transaction, a challenge to the merger on antitrust grounds may be made, and, if such a challenge is made, it is possible that Alliance Data and Conversant will not prevail.

Treatment of Conversant Stock Options and Other Equity Awards

Pursuant to the merger agreement, each Conversant stock option that is outstanding and unexercised immediately prior to the effective time of the merger will be converted into an option to acquire a number of shares of Alliance Data common stock, rounded down to the nearest whole share, determined by multiplying the number of shares underlying the existing Conversant stock options by the Per Share Stock Election Consideration, at an exercise price per share of Alliance Data common stock, rounded up to the nearest whole cent, equal to the per-share exercise price for the Conversant stock option immediately prior to the effective time of the merger divided by the Per Share Stock Election Consideration.

At the effective time of the merger, each outstanding Conversant restricted stock award that is not vested by its terms upon or before the closing of the merger will, pursuant to the merger agreement, be converted into a restricted stock award with respect to whole shares of Alliance Data common stock, with the number of shares of Alliance Data common stock subject to each such converted restricted stock award, rounded down to the nearest whole share, determined by multiplying the number of shares of Conversant common stock subject to the existing restricted stock award by the Per Share Stock Election Consideration. Each Conversant restricted stock award that is vested by its terms upon or before the closing of the merger will, at the effective time of the merger, entitle the holder thereof to the merger consideration. However, in connection with the merger, Conversant’s President and Chief Executive Officer John Giuliani entered into an agreement with Alliance Data to, among other things, waive his right to acceleration of his outstanding unvested restricted stock awards. Additional information regarding this agreement and Mr. Giuliani’s restricted stock awards is included under the headings “—Interests of Directors and Executive Officers of Conversant in the Merger—Treatment of Conversant Stock Options and Other Equity Awards,” and “—Letter Agreement with John Giuliani.”

Each converted stock option or restricted stock award will be issued in respect of Alliance Data common stock under the Alliance Data 2010 Omnibus Incentive Plan, subject to the same terms and conditions as the related Conversant stock option or restricted stock award as in effect immediately prior to the effective time of the merger (taking into account the adjustments to the number of shares and exercise price). Each Conversant stock incentive plan will be terminated by the board of directors of Conversant prior to the effective time of the merger.

 

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Appraisal Rights

Delaware law entitles the holders of shares of Conversant common stock, who do not vote in favor of adopting the merger agreement and who follow the procedures specified in Section 262 of the DGCL, to have their shares appraised by the Delaware Court of Chancery, or the Chancery Court, and to receive the “fair value” of such shares as of closing of the merger in place of the merger consideration, as determined by the Chancery Court. Notwithstanding the foregoing, the holders of shares of Conversant common stock that choose to make an election with respect to the form of merger consideration they wish to receive will be deemed to waive their rights of appraisal.

In order to preserve the ability to exercise such rights, a holder must demand and perfect appraisal rights in accordance with Section 262.

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed in order to perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262, the full text of which appears in Annex C to this proxy statement/prospectus.

Section 262 requires that stockholders be notified that appraisal rights will be available not less than 20 days before the meeting of stockholders to vote on the adoption of the merger agreement. A copy of Section 262 must be included with such notice. This document constitutes Conversant’s notice to the holders of shares of Conversant common stock of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you are a Conversant stockholder and wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex C to this document since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under Delaware law.

Any Conversant stockholder wishing to exercise the right to demand appraisal under Section 262 must satisfy the following conditions, among other technical requirements contained in Section 262:

 

    deliver to Conversant a written demand for appraisal of your shares of Conversant common stock before the vote with respect to the Merger Proposal is taken;

 

    not vote in favor of the Merger Proposal. A proxy that does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Proposal. Therefore, a Conversant stockholder who votes by proxy and who wishes to exercise appraisal rights must vote against the Merger Proposal or abstain from voting on the Merger Proposal. However, voting against, abstaining from voting on or failing to vote on the Merger Proposal will not constitute a written demand for appraisal within the meaning of Section 262. The written demand for appraisal must be made in addition to and separate from any proxy you deliver or vote you cast in person; and

 

    continuously hold your shares of Conversant common stock through the closing of the merger.

If you fail to comply with these conditions, among other technical requirements contained in Section 262, and the merger is completed, you will be entitled to receive the Base Consideration for your shares of Conversant common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of Conversant common stock.

In addition, if you wish to exercise appraisal rights you should not make a Cash Election or Stock Election or make an election to receive the Base Consideration. The form of election contains a waiver of appraisal rights and making any election will, unless revoked prior to the election deadline, constitute a waiver of appraisal rights.

All demands for appraisal should be addressed to the Secretary of Conversant at 30699 Russell Ranch Road Suite 250, Westlake Village, CA 91362 before the vote on the Merger Proposal is taken at the special meeting of

 

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Conversant stockholders or any adjournment or postponement thereof, and must be executed by, or on behalf of, the record holder of the shares for which appraisal rights are being exercised. The demand must reasonably inform Conversant of the identity of the holder and the intention of the holder to demand appraisal of his, her or its shares of Conversant common stock.

If your shares of Conversant common stock are held of record through a broker, bank, nominee or other third party and you wish to demand appraisal rights, you must act promptly to instruct the applicable broker, bank nominee or other third party to follow the steps summarized in this section. If your shares of Conversant common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made in that capacity. If your shares of Conversant common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a bank, brokerage firm or other nominee, who holds shares of Conversant common stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of Conversant common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of Conversant common stock as to which appraisal is sought. Where no number of shares of Conversant common stock is expressly mentioned, the demand will be presumed to cover all shares of Conversant common stock held in the name of the record owner.

Within ten days after the effective date of the merger, Conversant must give written notice that the merger has become effective to each Conversant stockholder who has properly filed a written demand for appraisal and who has not voted in favor of the merger or otherwise waived appraisal rights (including by submitting and not revoking a form of election prior to the election deadline). At any time within 60 days after the effective date, any holder who has demanded an appraisal has the right to withdraw the demand and to accept the merger consideration in accordance with the merger agreement for his, her or its shares of Conversant common stock. Within 120 days after the effective date of the merger, either Alliance Data or any holder who has complied with the requirements of Section 262 may file a petition with the Chancery Court demanding a determination of the fair value of the shares held by all holders entitled to appraisal. Alliance Data has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a Conversant stockholder to file such a petition within the period specified could nullify the Conversant stockholder’s previously written demand for appraisal. In addition, within 120 calendar days after the effective time of the merger, any stockholder who properly complied with the requirements of Section 262 will be entitled to receive from Alliance Data, upon written request, a statement setting forth the aggregate number of shares of Conversant common stock not voted or consented in favor of the Merger Proposal and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares of Conversant common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file such a petition or request the statement described in the preceding sentence.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to Alliance Data, Alliance Data will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all holders who have demanded an appraisal of their shares. After notice to dissenting Conversant stockholders, the Chancery Court is empowered to conduct a hearing upon the petition, and to determine those Conversant stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Chancery Court may require the Conversant stockholders who have demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any Conversant stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that Conversant stockholder.

 

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After determination of the Conversant stockholders entitled to appraisal of their shares, the Chancery Court will appraise the shares of Conversant common stock, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger. Unless the Chancery Court in its discretion determines otherwise for good cause shown, interest from the effective time of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5.0% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment. When the value is determined, the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the holders entitled to receive the same, upon surrender by such holders of the certificates representing those shares of Conversant common stock.

In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that an investment banking opinion as to the fairness from a financial point of view of the consideration to be received in a transaction such as the merger is not an opinion as to fair value under Section 262. Although Conversant believes that the per share merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Chancery Court and stockholders should recognize that such an appraisal could result in determination of a value higher or lower than, or the same as, the per share merger consideration. Moreover, we do not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of Conversant common stock is less than the per share merger consideration.

In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation of the merger. In Weinberger, the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible as proof as of the date of the Merger and not the product of speculation, may be considered.” In addition, the Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.

Costs of the appraisal proceeding may be imposed upon the parties participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a Conversant stockholder, the Chancery Court may order all or a portion of the expenses incurred by any Conversant stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any Conversant stockholder who has demanded appraisal rights will not, after the effective date of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective date of the merger.

At any time within 60 days after the effective date of the merger, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw his, her or its demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder

 

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may withdraw his, her or its demand for appraisal and receive payment for his, her or its shares as provided in the merger agreement only with Alliance Data’s written consent. No appraisal proceeding in the Chancery Court will be dismissed as to any stockholder without the approval of the Chancery Court, and such approval may be conditioned upon such terms as the Chancery Court deems just. If Alliance Data does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Chancery Court does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be more or less than, or equal to, the consideration being offered pursuant to the merger agreement. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders’ rights to appraisal (if available) will cease. Inasmuch as Alliance Data has no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis.

In view of the complexity of Section 262, holders of shares of Conversant common stock who may wish to dissent from the merger and pursue appraisal rights should promptly consult their legal advisors.

New York Stock Exchange Listing of Alliance Data Common Stock; Delisting and Deregistration of Conversant Common Stock

Prior to the closing of the merger, Alliance Data has agreed to use its reasonable best efforts to cause the shares of Alliance Data common stock to be issued in the merger to be approved for listing on the NYSE. This approval is a condition to both Conversant’s and Alliance Data’s obligation to complete the merger. If the merger is completed, Conversant common stock will cease to be listed on The NASDAQ Global Select Market, and its shares will be deregistered under the Exchange Act.

Litigation Related to the Merger

On September 12, 2014, a putative stockholder class action complaint, captioned Palkon v. Conversant, Inc., et al., No. 56-2014-00457860-CU-BT-VTA (Superior Court, Ventura County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Superior Court of the State of California in Ventura County. On October 7, 2014, the plaintiff in the Palkon action filed a request for voluntary dismissal. The court issued an order granting the request and dismissing the action on October 21, 2014. Additionally, on September 16, 2014, a second putative stockholder class action complaint, captioned Leinoff v. Conversant, Inc., et al., No. BC-557818 (Superior Court, Los Angeles County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Superior Court of the State of California in Los Angeles County. An amended complaint was filed in Leinoff on October 21, 2014. On September 19, 2014, a third putative stockholder class action complaint, captioned Blaze v. Conversant, Inc., et al., No. BC-558100 (Superior Court, Los Angeles County), was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. The plaintiff in the Los Angeles County Blaze action filed a request for voluntary dismissal on October 17, 2014. On September 26, 2014, a fourth putative class action stockholder complaint, captioned Feliciano v. Buzby, et al., C.A. No. 10174-VCN (Chancery Court, Delaware) was filed against Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary in the Court of Chancery of the State of Delaware. An amended complaint was filed in Feliciano on October 9, 2014. On September 30, 2014, a fifth putative stockholder class action complaint, captioned Naclerio v. Conversant, Inc., et al., No. BC559187 (Superior Court, Los Angeles County) was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. On October 3, 2014, a sixth putative stockholder class action complaint, captioned Hoffman v. Conversant, Inc., et al., No. BC559660 (Superior Court, Los Angeles County) was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Superior Court of the State of California in Los Angeles County. On October 17, 2014, a seventh putative stockholder class action complaint, captioned Joyce v. Conversant, Inc., et al., C.A. No. 10254-VCN (Chancery Court, Delaware), was filed against Conversant, Conversant’s directors, Alliance Data, and the

 

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Merger Subsidiary in the Court of Chancery of the State of Delaware. On October 22, 2014, the plaintiff in Joyce filed a motion to expedite proceedings, including expediting discovery. On October 17, 2014, an eighth putative stockholder class action complaint, captioned Blaze v. Conversant, Inc. et al., C.A. No. 10253-VCN (Chancery Court, Delaware), was filed against Conversant, Conversant’s directors, Alliance Data, and the Merger Subsidiary, also in the Court of Chancery of the State of Delaware. On October 30, 2014, an order was entered consolidating the Delaware actions into a consolidated action captioned In re Conversant, Inc. Stockholder Litigation, C.A. No. 10174-VCN (Chancery Court, Delaware), and appointing Plaintiffs’ co-lead counsel and liaison counsel for the consolidated action.

Each lawsuit alleges that members of the Conversant board of directors breached their fiduciary duties in connection with the proposed sale of Conversant to Alliance Data. Each complaint also alleges that Conversant, Alliance Data and the Merger Subsidiary aided and abetted the alleged breach of fiduciary duty. The Delaware complaints and the amended complaint in Leinoff also include claims regarding alleged misrepresentations and omissions made in the Conversant’s preliminary proxy statement. The complaints seek, among other things, injunctive relief and other equitable relief, in addition to unspecified fees and costs. Conversant, Conversant’s directors, Alliance Data and the Merger Subsidiary believe these lawsuits are without merit and intend to defend against each of them vigorously.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. federal income tax consequences of the merger applicable to a holder of shares of Conversant common stock. This discussion is based upon the Code, Treasury regulations, judicial authorities, published positions of the Internal Revenue Service, or the IRS, and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). This discussion is limited to U.S. holders (as defined below) that hold their shares of Conversant common stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion does not address all of the tax consequences that may be relevant to a particular Conversant stockholder or to Conversant stockholders that are subject to special treatment under U.S. federal income tax laws, such as:

 

    stockholders that are not U.S. holders;

 

    financial institutions;

 

    insurance companies;

 

    tax-exempt organizations;

 

    dealers in securities or currencies;

 

    persons whose functional currency is not the U.S. dollar;

 

    traders in securities that elect to use a mark to market method of accounting;

 

    persons who own more than 5% of the outstanding stock of Conversant;

 

    persons who hold Conversant common stock as part of a straddle, hedge, constructive sale or conversion transaction; and

 

    U.S. holders who acquired their shares of Conversant common stock through the exercise of an employee stock option or otherwise as compensation.

If an entity treated as a partnership for U.S. federal income tax purposes holds Conversant common stock, the tax treatment of a person treated as a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partners of entities treated as partnerships for U.S. federal income tax purposes holding shares of Conversant common stock should consult their tax advisors as to the tax consequences of the merger to them.

This discussion does not address the tax consequences of the merger under state, local, foreign or other tax laws or the alternative minimum tax provisions of the Code.

Conversant stockholders are urged to consult with their own tax advisors as to the income and other tax consequences of the merger in their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

For purposes of this section, the term “U.S. holder” means a beneficial owner of Conversant common stock that, for U.S. federal income tax purposes, is:

 

    a citizen or resident of the United States;

 

    a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust, if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

 

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Tax Treatment of the Merger

The federal income tax consequences of the merger will differ depending on whether the forward merger or reverse merger structure is used. If the forward merger structure is used, Alliance Data and Conversant intend the merger to be treated as a reorganization within the meaning of Section 368(a) of the Code. However, neither Alliance Data nor Conversant intends to request any ruling from the IRS or opinions of counsel as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. The merger agreement contains a “Reverse Merger Condition” that, if satisfied, requires that, in lieu of Conversant merging into a newly formed subsidiary of Alliance Data with that new subsidiary surviving the merger, Alliance Data will form a new subsidiary corporation that would merge with and into Conversant, with Conversant as the entity surviving in the merger. If the reverse merger structure is used, the merger will not be treated as a reorganization under Section 368(a) of the Code and instead will be treated as a sale of Conversant stock in a fully taxable transaction as described below under the heading “—Tax Consequences of the Reverse Merger Structure.” We will not know until the closing of the acquisition whether the forward merger structure or the reverse merger structure will be used. As a result, Conversant stockholders will not know the tax consequences to them of the merger at the time they vote on it. The purpose of using the reverse merger structure is to avoid the substantial corporate level tax that would result if the merger were to be structured as a forward merger and were to fail to satisfy the requirements for a tax-free reorganization under Section 368(a) of the Internal Revenue Code.

For the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, the holders of the Conversant common stock must receive a sufficient amount of the Alliance Data common stock to meet the “continuity of interest” requirement for such reorganizations. The continuity of interest requirement generally would be met if the fair market value of the Alliance Data common stock received in the merger represented 40% or more of the total merger consideration. Whether this requirement is satisfied depends on certain variables, including the mix of cash and Alliance Data common stock to be received in the merger and the value of Alliance Data common stock. Because of these variables, there can be no assurances that the 40% threshold will be met. The merger agreement contains a mechanism to determine whether or not the 40% threshold is met. Under the merger agreement, if on the trading date immediately before the closing date, the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in, or in connection with, the merger (i.e., cash plus Alliance Data common stock), the 40% threshold will not be met and the reverse merger structure will be used. Otherwise, the forward merger structure will be used.

Tax Consequences of the Forward Merger Structure

The following discussion summarizes the material U.S. federal income tax consequences of the merger to U.S. holders of Conversant stock, assuming the forward merger structure is used and the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code. If the merger qualifies as a reorganization, the federal income tax consequences of the merger to a Conversant stockholder will depend on whether the stockholder receives solely Alliance Data common stock, solely cash, or a combination of cash and Alliance Data common stock in the Merger. However, neither Alliance Data nor Conversant intends to request any ruling from the IRS or opinions of counsel as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below.

Exchange of Conversant Common Stock Solely for Cash

A U.S. holder of Conversant common stock that exchanges its Conversant common stock solely for cash will be required to recognize gain, and should be permitted to recognize loss, equal to the difference between the amount of cash received pursuant to the merger and the holder’s adjusted tax basis in the shares of Conversant common stock surrendered. The amount and character of gain or loss will be computed separately for each block of Conversant common stock ( i.e., shares acquired at different times and at different prices). Any recognized

 

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gain or loss will generally be capital gain or loss and any such capital gain or loss will be long term if, as of the date of sale or exchange, such stockholder has held the shares of Conversant common stock for more than one year or will be short term if, as of such date, such stockholder has held the shares of Contour common stock for one year or less.

Exchange of Conversant Stock Solely for Alliance Data Common Stock

A U.S. holder of Conversant common stock that exchanges its Conversant common stock solely for shares of Alliance Data common stock pursuant to the Merger will not recognize gain or loss for United States federal income tax purposes, except with respect to cash, if any, they receive in lieu of a fractional share of Alliance Data common stock. Each holder’s aggregate tax basis in the Alliance Data common stock received in the Merger will be the same as his or her aggregate tax basis in the Conversant common stock surrendered in the transaction, decreased by the amount of any tax basis allocable to any fractional share interest for which cash is received. The holding period of the Alliance Data common stock received in the Merger by a holder of Conversant common stock will include the holding period of Conversant common stock that he or she surrendered. If a Conversant stockholder has differing tax bases and/or holding periods in respect of the stockholder’s shares of Conversant common stock, the stockholder should consult with a tax advisor in order to identify the tax bases and/or holding periods of the particular shares of Alliance Data common stock that the stockholder receives.

Exchange of Conversant Common Stock for Alliance Data Common Stock and Cash

A U.S. holder of Conversant common stock that exchanges its Conversant common stock for a combination of Alliance Data common stock and cash (other than cash received in lieu of a fractional share) pursuant to the merger will generally recognize gain (but not loss) in an amount equal to the lesser of (i) the holder’s gain realized (i.e., the excess, if any, of the sum of the amount of cash and the fair market value, as of the effective time of the merger, of the Alliance Data common stock received over the holder’s adjusted tax basis in the shares of Conversant common stock surrendered) and (ii) the amount of cash received pursuant to the merger (other than cash received in lieu of a fractional share). A U.S. holder must calculate the amount of gain or loss realized and recognized separately for each block of shares (i.e., shares acquired at different times and at different prices) of Conversant common stock surrendered, and a Conversant stockholder cannot offset a loss realized on one block of such shares against a gain recognized on another block of such shares. Any recognized gain will generally be long-term capital gain if the U.S. holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger. However, there are certain circumstances in which all or part of the gain recognized by a U.S. holder will be treated as a dividend rather than as capital gain. In general, gain recognized will be treated as a dividend instead of capital gain if the receipt of the cash has the effect of the distribution of a dividend for U.S. federal income tax purposes under Sections 302 and 356 of the Code. Because these rules are complex and the possibility of dividend treatment depends primarily upon a U.S. holder’s particular circumstances, U.S. holders should consult their own tax advisors regarding the potential tax consequences of the merger to them.

A U.S. holder’s aggregate tax basis in the Alliance Data common stock received in the merger, excluding the basis allocable to any fractional share of Alliance Data common stock for which cash is received, will be equal to the U.S. holder’s aggregate tax basis in the Conversant common stock surrendered in the merger, decreased by the amount of any cash received (excluding any cash received in lieu of a fractional share of Alliance Data common stock) and increased by the amount of gain, if any, recognized or any amount treated as a dividend as discussed above (but excluding any gain resulting from the deemed receipt and redemption of fractional shares, as discussed below). Cash received and gain realized in connection with the receipt of cash in lieu of a fractional share of common stock are not taken into account in making the computations of gain realized or recognized and basis in the shares received. Rather, such cash and gain are treated as described below. A U.S. holder’s holding period for the shares of Alliance Data common stock received in the merger will include the holding period for the block of Conversant common stock surrendered in exchange therefor. If a Conversant

 

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stockholder has differing tax bases and/or holding periods in respect of the stockholder’s shares of Conversant common stock, the stockholder should consult with a tax advisor in order to identify the tax bases and/or holding periods of the particular shares of Alliance Date common stock that the stockholder receives.

Cash Received in Lieu of Fractional Shares

A U.S. holder that receives cash in lieu of a fractional share of Alliance Data common stock in the merger will generally be treated as having received the fractional share and then as having received the cash in redemption of the fractional share. A U.S. holder generally will recognize gain or loss measured by the difference between the amount of cash received and the portion of the basis of the shares of Conversant common stock allocable to such fractional share. Such gain or loss will generally be long-term capital gain or loss if the U.S. holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger.

Tax Consequences of the Reverse Merger Structure

If the reverse merger structure is used, the merger will not qualify as a reorganization within the meaning of Section 368(a) of the Code. In that case, holders of Conversant common stock whose shares are exchanged in the merger for merger consideration will generally recognize gain or loss in an amount equal to the difference between (i) the fair market value, as of the effective time of the merger, of Alliance Data common stock received plus any cash received and (ii) the holder’s adjusted tax basis in the shares of Conversant common stock surrendered. Such gain or loss generally will be determined separately with respect to each block of Conversant shares surrendered in the merger, and generally will be long-term capital gain or loss if the holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger.

3.8% Medicare Tax on Net Investment Income

U.S. holders that are individuals, estates, and certain trusts may be subject to an additional 3.8% tax on all or a portion of their “net investment income” if their modified adjusted gross income exceeds certain thresholds (which, in the case of individuals, will be between $125,000 and $250,000, depending on the individual’s circumstances). The taxable gain or dividend income realized by a U.S. holder as a result of the merger may be included in such U.S. holder’s “net investment income” subject to the 3.8% tax. Conversant stockholders should consult their own tax advisors with respect to the applicability of this additional 3.8% tax on any gain resulting from the merger.

Backup Withholding

Certain holders of Conversant common stock may be subject to information reporting and backup withholding with respect to amounts received as a result of the merger. Backup withholding will not apply, however, to a U.S. holder who furnishes a correct taxpayer identification number and certifies that such U.S. holder is not subject to backup withholding on IRS Form W-9 or a substantially similar form or is otherwise exempt from backup withholding. If a U.S. holder does not provide a correct taxpayer identification number on IRS Form W-9 or a substantially similar form, the holder may be subject to penalties imposed by the IRS. Amounts withheld, if any, are generally not an additional tax and may be refunded or credited against the U.S. holder’s federal income tax liability, provided that the U.S. holder timely furnishes the required information to the IRS.

Reporting Requirements

If the forward merger structure is used and the merger is treated as a reorganization, a U.S. holder who receives Alliance Data common stock as a result of the merger will be required to retain records pertaining to the merger. Each U.S. holder who is a “significant holder” that receives Alliance Data common stock will be

 

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required to file a statement with such holder’s U.S. federal income tax return setting forth such holder’s basis in the Conversant common stock and the fair market value of the Alliance Data common stock received in the merger. A “significant holder” is a U.S. holder, who, immediately before the merger, owned at least 5% of the outstanding stock of Conversant.

Exercise of Appraisal Rights

The above discussion does not apply to Conversant stockholders who exercise appraisal rights with respect to the merger. A Conversant stockholder who exercises appraisal rights with respect to the merger and receives cash in exchange for such holder’s shares of Conversant common stock generally will recognize gain or loss equal to the difference between (i) the amount of cash received in exchange for the shares and (ii) the holder’s adjusted tax basis in the shares exchanged therefor. Such gain or loss will generally be long-term capital gain or loss if the holder’s holding period for the Conversant common stock surrendered exceeds one year at the effective time of the merger. Interest, if any, awarded in an appraisal proceeding by a court would be included in such holder’s income as ordinary income for U.S. federal income tax purposes. Conversant stockholders who exercise appraisal rights with respect to the merger should consult their own tax advisors to determine the tax consequences of the merger in their particular circumstances.

The above discussion is intended to provide only a summary of the material U.S. federal income tax consequences of the merger to Conversant stockholders who are U.S. holders. It is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. It does not address certain categories of holders of shares of Conversant common stock, and it does not address state, local, foreign or non-income tax consequences. In addition, it does not address tax consequences that may vary with, or are contingent upon, individual circumstances. All Conversant stockholders are strongly urged to consult their own tax advisors to determine the specific U.S. federal, state, local or foreign income and other tax consequences resulting from the merger in light of their particular circumstances.

 

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THE MERGER AGREEMENT

The following discussion summarizes material provisions of the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this summary. This summary does not purport to be complete and is qualified in its entirety by reference to the complete text of the merger agreement. We urge you to read the merger agreement carefully in its entirety, as well as this proxy statement/prospectus, before making any decisions regarding the merger.

The representations and warranties described below and included in the merger agreement were made by Alliance Data and Conversant to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by Alliance Data and Conversant in connection with negotiating the terms of the merger agreement. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk between Alliance Data and Conversant rather than establishing matters as facts. The merger agreement is described in this proxy statement/prospectus and included as Annex A only to provide you with information regarding the terms and conditions of the merger agreement, and not to provide any other factual information regarding Alliance Data, Conversant or their respective businesses. Accordingly, you should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about Alliance Data or Conversant, and you should read the information provided elsewhere in this proxy statement/prospectus and in the documents that we incorporate by reference into this proxy statement/prospectus for information regarding Alliance Data and Conversant and their respective businesses. See “Where You Can Find More Information.”

The Merger

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Conversant will merge with and into the Merger Subsidiary, with the Merger Subsidiary surviving the merger as a wholly-owned subsidiary of Alliance Data. We expect that, on a fully-diluted basis, the existing stockholders of Alliance Data and the former stockholders of Conversant will own approximately 93% and 7%, respectively, of the outstanding Alliance Data common stock following the merger.

The merger agreement contains a “Reverse Merger Condition” that requires that the form of the merger be revised and that Alliance Data form a new subsidiary corporation that would merge with and into Conversant, which would be the surviving entity in the merger. The Reverse Merger Condition would apply if on the trading date immediately before the Closing date, the aggregate value of all Alliance Data common stock to be received by all Conversant stockholders as a group in the merger would be less than 40% of the aggregate value of all consideration to be received by all Conversant stockholders as a group in the merger (i.e., cash plus Alliance Data common stock. See “Material U.S. Federal Income Tax Consequences.”

Closing and Effective Time of the Merger

The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as may be agreed upon by Alliance Data and Conversant and specified in the certificate of merger. The filing of the certificate of merger will occur as soon as practicable after the conditions to closing of the merger have been satisfied or waived and the merger’s closing has taken place.

Manager and Officer Designations

Under the merger agreement, the managers of the Merger Subsidiary immediately prior to the effective time of the merger will be designated as the managers of the surviving company, and unless otherwise determined by

 

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Alliance Data prior to the effective time of the merger, the officers of the Merger Subsidiary immediately prior to the effective time of the merger will be designated as the initial officers of the surviving company and will hold office until their respective successors are elected and qualified, or until their earlier death, resignation or removal.

Consideration to be Received in the Merger

In the proposed merger, Conversant stockholders will receive for each share of Conversant common stock the combination, which we refer to as the Base Consideration, of (x) 0.07037 of a share, which we refer to as the Fixed Exchange Ratio, of Alliance Data common stock and (y) an amount in cash equal to $35.00 minus the product of the volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the merger’s closing, which we refer to as the Parent Closing Trading Price, multiplied by the Fixed Exchange Ratio, which cash portion of the Base Consideration, which we refer to as the Per Share Cash Consideration. Notwithstanding the foregoing, the Per Share Cash Consideration will not exceed $18.62, which we refer to as the Per Share Cash Cap, and will not be less than $14.98, which we refer to as the Per Share Cash Minimum. In the event that the Per Share Cash Cap or Per Share Cash Minimum is reached, the Per Share Cash Consideration will be fixed at the Per Share Cash Cap or the Per Share Cash Minimum, as applicable, and the value that Conversant stockholders will receive for each share of Conversant common stock will fluctuate below or above $35.00, as applicable, to the extent that the Parent Closing Trading Price is below $232.75 or above $284.48.

In lieu of the Base Consideration described above, each Conversant stockholder will have the right to elect to receive for each share of Conversant common stock eligible to receive merger consideration (1) cash equal to $35.00, except in the case in which the Per Share Cash Cap or Per Share Cash Minimum has been reached, in which case, cash equal to the sum of (x) Fixed Exchange Ratio multiplied by the Parent Closing Trading Price and (y) the Per Share Cash Consideration, or the Cash Election, or (2) a number of shares of Alliance Data common stock equal to the sum of (x) Fixed Exchange Ratio and (y) the quotient of the Per Share Cash Consideration divided by the Parent Closing Trading Price, which election we refer to as a Stock Election, and which consideration we refer to as the Per Share Stock Election Consideration, and, in the case of either a Cash or Stock Election, both are subject to proration as described below.

The Base Consideration otherwise payable on each share of Conversant common stock as to which either a Cash Election or Stock Election has been made will be pooled and reallocated among all such shares of Conversant common stock as to which an election has been made. This pooling and reallocation means that each such share gets to the greatest extent possible, all cash or all Alliance Data common stock, but with the consideration payable on each such share of Conversant common stock pro rated to the extent there is not enough cash or enough Alliance Data common stock to pay pursuant to each such election (and with the difference between such pro rated amount being made up in the remaining Alliance Data common stock or cash, as applicable). The aggregate amount of cash and shares of Alliance Data common stock payable by Alliance Data in the merger shall equal the aggregate amount of cash and shares of Alliance Data common stock that would have otherwise been payable by Alliance Data if no election had been made by Conversant stockholders, and all such stockholders were to receive the Base Consideration. Shares of Conversant common stock (i) held in Conversant’s treasury, (ii) held by Alliance Data or any of its subsidiaries, (iii) issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger, or (iv) as to which the holder has properly exercised appraisal rights will not receive the merger consideration (except that shares of Conversant common stock that were issued pursuant to Conversant restricted stock award grants that remain unvested upon closing of the merger shall be entitled to receive the consideration described under the heading “The Merger—Treatment of Conversant Stock Options and Other Equity Awards”).

 

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The following table illustrates the value of the Base Consideration per share of Conversant common stock for different hypothetical Parent Closing Trading Prices (with the shaded lines defining the lower and upper boundaries of the collar).

 

Parent Closing
Trading Price (a)

  Fixed
Exchange Ratio
    Approx. Value of
Per Share
Stock Consideration (b)
    Approx. Per Share
Cash
Consideration
    Approx. Total Value of
Per Share Merger
Consideration
 
$220.00     0.07037      $ 15.48      $ 18.62      $ 34.10   
$225.00     0.07037      $ 15.83      $ 18.62      $ 34.45   
$230.00     0.07037      $ 16.19      $ 18.62      $ 34.81   
$232.00     0.07037      $ 16.33      $ 18.62      $ 34.95   
$232.75(c)     0.07037      $ 16.38      $ 18.62      $ 35.00   
$233.00     0.07037      $ 16.40      $ 18.60      $ 35.00   
$235.00     0.07037      $ 16.54      $ 18.46      $ 35.00   
$240.00     0.07037      $ 16.89      $ 18.11      $ 35.00   
$245.00     0.07037      $ 17.24      $ 17.76      $ 35.00   
$255.00     0.07037      $ 17.94      $ 17.06      $ 35.00   
$258.00     0.07037      $ 18.16      $ 16.84      $ 35.00   
$258.61(d)     0.07037      $ 18.20      $ 16.80      $ 35.00   
$259.00     0.07037      $ 18.23      $ 16.77      $ 35.00   
$260.00     0.07037      $ 18.30      $ 16.70      $ 35.00   
$265.00     0.07037      $ 18.65      $ 16.35      $ 35.00   
$270.00     0.07037      $ 19.00      $ 16.00      $ 35.00   
$275.00     0.07037      $ 19.35      $ 15.65      $ 35.00   
$280.00     0.07037      $ 19.70      $ 15.30      $ 35.00   
$284.00     0.07037      $ 19.99      $ 15.01      $ 35.00   
$284.48(e)     0.07037      $ 20.02      $ 14.98      $ 35.00   
$285.00     0.07037      $ 20.06      $ 14.98      $ 35.04   
$290.00     0.07037      $ 20.41      $ 14.98      $ 35.39   
$295.00     0.07037      $ 20.76      $ 14.98      $ 35.74   
$300.00     0.07037      $ 21.11      $ 14.98      $ 36.09   

 

(a) Hypothetical volume weighted average price per share of Alliance Data common stock on the NYSE for the consecutive period of fifteen trading days ending on the close of trading on the second trading day immediately preceding the closing of the merger.
(b) Note that per the terms of the merger agreement, any fractional shares of Alliance Data common stock payable to any holder of Conversant common stock will be aggregated and paid in cash.
(c) Reflects a 10% reduction in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the lower boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Cap is reached.
(d) The 7-day volume weighted average price per share of Alliance Data common stock on the NYSE as of the close of business on September 10, 2014, the last business day prior to the date the merger agreement was executed, referred to in this proxy statement/prospectus as the Parent Signing Trading Price.
(e) Reflects a 10% increase in the Parent Closing Trading Price compared to the Parent Signing Trading Price, which is the upper boundary of the collar and the Parent Closing Trading Price at which the Per Share Cash Minimum is reached.

For tabular illustrations of proration calculations for different hypothetical Cash Elections and Stock Elections that may be made by Conversant stockholders under the terms of the merger agreement, see Annex D to this proxy statement/prospectus.

The tables included or referenced above are for illustrative purposes only. The value of the merger consideration that a Conversant stockholder actually receives will be based on the actual Parent Closing Trading Price, and the mix of merger consideration that an electing Conversant stockholder actually receives will depend on the elections made by other Conversant stockholders.

 

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Alliance Data will not issue any fractional shares of its common stock in the merger. Instead, Conversant stockholders will receive cash in lieu of any fractional shares in an amount determined by multiplying (x) the closing price of Alliance Data common stock reported on the NYSE on the trading day immediately preceding the date of the merger’s closing by (y) the fraction of a share of Alliance Data common stock to which the stockholder would otherwise be entitled.

The merger agreement provides for adjustments to the merger consideration to reflect fully the effect of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares, or any similar event with respect to Alliance Data common stock or Conversant common stock occurring between September 11, 2014 and the effective time of the merger.

Treatment of Conversant Stock Options and Other Equity Awards

Pursuant to the merger agreement, each Conversant stock option that is outstanding and unexercised immediately prior to the effective time of the merger will be converted into an option to acquire a number of shares of Alliance Data common stock, rounded down to the nearest whole share, determined by multiplying the number of shares underlying the existing Conversant stock option by the Per Share Stock Election Consideration, at an exercise price per share of Alliance Data common stock, rounded up to the nearest whole cent, equal to the per-share exercise price for the Conversant stock option immediately prior to the effective time of the merger divided by the Per Share Stock Election Consideration.

At the effective time of the merger, each outstanding Conversant restricted stock award that is not vested by its terms upon or before the closing of the merger will, pursuant to the merger agreement, be converted into a restricted stock award with respect to whole shares of Alliance Data common stock, with the number of shares of Alliance Data common stock subject to each such converted restricted stock award, rounded down to the nearest whole share, determined by multiplying the number of shares of Conversant common stock subject to the existing restricted stock award by the Per Share Stock Election Consideration. Each Conversant restricted stock award that is vested by its terms upon or before the closing of the merger will, at the effective time of the merger, entitle the holder thereof to the merger consideration.

Each converted stock option or restricted stock award will be issued in respect of Alliance Data common stock under the Alliance Data 2010 Omnibus Incentive Plan, subject to the same terms and conditions as the respective Conversant stock option or restricted stock award as in effect immediately prior to the effective time of the merger (taking into account the adjustments to the number of shares and exercise price). Each Conversant stock incentive plan will be terminated by the board of directors of Conversant prior to the effective time of the merger.

Procedures for Election

The form of election will be made available to Conversant stockholders on the same day as this proxy statement/prospectus. The form of election enables Conversant stockholders to choose to make a Stock Election, a Cash Election or choose the default Base Consideration with respect to each of their shares of Conversant common stock eligible to receive the merger consideration. Conversant stockholders have until 5:00 p.m. New York City time on December 8, 2014, referred to in this proxy statement/prospectus as the “election deadline,” to make their election and return their completed election forms, along with any stock certificates held, to the exchange agent. If a stockholder holds shares of Conversant common stock through a bank, broker or other nominee, such bank, broker or other nominee, as applicable, will provide that stockholder with instructions on how to make an election. If a stockholder holds shares of Conversant restricted stock that will be unvested as of the election deadline but will vest prior to or in connection with the closing of the merger, that stockholder will be provided with instructions on how to make an election with respect to those shares.

With respect to shares of Conversant common stock that are held in certificated form, the delivery of the certificates, together with the properly completed form of election, shall be effected only upon delivery to the exchange agent of the physical certificates representing the shares of Conversant common stock to which such

 

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form of election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of Conversant. With respect to shares of Conversant common stock that are held in “book-entry” form, the holder should follow the instructions in the form of election in order to make an election. The shares of Conversant common stock with respect to which an election is made will not be considered to be properly delivered if the exchange agent receives a guarantee of delivery of such shares (from a firm that is an “eligible guarantor institution” as defined in Rule 17Ad-15 under the Exchange Act) without delivery of the physical certificates by the election deadline. Further, Conversant stockholders who have lost their certificates will need to have such certificates replaced in advance of the election deadline to allow sufficient time for delivery of their replacement certificates to the exchange agent by the election deadline. If Conversant stockholders do not send their completed form of election to the exchange agent by the election deadline, or fail to properly deliver their certificates or other documents specified in the form of election (with respect to certificated or book-entry shares for which an election is made) by the election deadline, such stockholders will not be deemed to have made a proper election and will instead receive the Base Consideration.

Procedures for Exchange of Certificates

Alliance Data will appoint Broadridge Corporate Issuer Solutions, Inc. as exchange agent for the purpose of exchanging certificates representing Conversant common stock for merger consideration.

As soon as reasonably practicable (and in any event no later than the third business day) after the effective time of the merger, Alliance Data will cause the exchange agent to mail a letter of transmittal to each holder of record of shares of Conversant common stock who holds shares in certificated form whose shares were converted into the right to receive the merger consideration (other than those holders of certificates who have properly completed and submitted and have not revoked forms of election), advising each such holder of the effectiveness of the merger and the procedure for surrendering his, her or its share certificates to the exchange agent. Conversant stockholders who hold their shares of Conversant common stock in book-entry form (other than those holders who have properly completed and submitted and have not revoked forms of election) shall automatically receive the Base Consideration with respect to such shares.

Each holder of a share of Conversant common stock in certificated form that has been converted into a right to receive the merger consideration will receive the merger consideration upon surrender to the exchange agent of the Conversant stock certificate, together with a letter of transmittal covering such shares and any other documents as the exchange agent may reasonably require.

After closing of the merger, each certificate that previously represented shares of Conversant common stock will represent only the right to receive the merger consideration as described above under “—Consideration to be Received in the Merger,” including any cash for fractional shares and dividends or other distributions payable after the closing of the merger. Conversant and Alliance Data are not liable to any holder of shares of Conversant common stock for any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law. After closing of the merger, Conversant will not register any transfers of shares of Conversant common stock.

Conversant stockholders (other than those holders of certificates who have properly completed and submitted and have not revoked forms of election) should not send in their Conversant stock certificates until they receive and complete and submit a signed letter of transmittal sent by the exchange agent with instructions for the surrender of Conversant stock certificates.

Representations and Warranties

The merger agreement contains customary representations and warranties for public company acquisitions of this type. The representations and warranties of Conversant relate to:

 

    organization;

 

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    capital stock and indebtedness;

 

    corporate authority; no violation;

 

    reports and financial statements;

 

    internal controls and procedures;

 

    no undisclosed liabilities;

 

    compliance with law; permits;

 

    environmental laws and regulations;

 

    employee benefit plans;

 

    absence of certain changes or events;

 

    investigations; litigation;

 

    information supplied;

 

    tax matters;

 

    employment and labor matters;

 

    intellectual property;

 

    property;

 

    insurance;

 

    opinion of financial advisor;

 

    material contracts;

 

    suppliers;

 

    customers;

 

    malware and open source;

 

    privacy;

 

    finders or brokers;

 

    state takeover statutes;

 

    export control laws;

 

    web practices;

 

    no repatriations; and

 

    no other representations.

Alliance Data’s representations and warranties relate to:

 

    organization; capitalization;

 

    corporate authority; no violation;

 

    reports and financial statements;

 

    no undisclosed liabilities;

 

    compliance with law; permits;

 

    absence of certain changes or events;

 

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    investigations; litigation;

 

    information supplied;

 

    finders or brokers;

 

    contracts;

 

    financing;

 

    operations of Merger Subsidiary;

 

    ownership of Conversant common stock;

 

    no vote of Alliance Data stockholders;

 

    tax free reorganization; and

 

    no other representations.

Conduct of Business Pending the Merger

Under the merger agreement, each of Conversant and Alliance Data will and will cause each of their respective subsidiaries to, subject to certain exceptions or unless the other party approves in writing: (i) conduct business in all material respects in the ordinary course, (ii) use reasonable best efforts to maintain and preserve intact, in all material respects, its business organization, assets, key employees, present lines of business, rights, franchises, permits and business relationships with customers and suppliers and (iii) take no action that is intended to or would reasonably be expected to adversely affect or materially delay the ability of Conversant or Alliance Data to perform its covenants, obligations or other agreements under the merger agreement or consummate the transactions contemplated in the merger agreement.

The merger agreement also contains a number of specific restrictions on Conversant and its operations during the period between the signing of the merger agreement and the closing of the merger. Under these restrictions, Conversant may not (nor permit any of its subsidiaries to), subject to certain exceptions or unless Alliance Data approves in writing:

 

    amend the organizational documents of Conversant or its subsidiaries or otherwise take any action to exempt any person from any provision of such organizational documents;

 

    split, combine or reclassify any of its capital stock;

 

    make, declare, set aside or pay any dividend or make any other distribution on or redeem, purchase or otherwise acquire any shares of its capital stock;

 

    grant any Conversant stock awards or other equity-based awards or interests, grant any individual, corporation or other entity any right to acquire any shares of its capital stock or enter into any agreement regarding the sale or voting of its capital stock or equity interests;

 

    issue, grant or otherwise permit to become outstanding any additional shares of capital stock (except pursuant to the exercise of Conversant options or the settlement of Conversant restricted stock awards);

 

    adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, or other reorganization, other than the merger;

 

    incur, assume, endorse, guarantee or otherwise become liable for or modify in any material respect the terms of any indebtedness for borrowed money or issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities;

 

    make any loans or advances to any person, except for loans among Conversant and any of its wholly-owned subsidiaries;

 

    prepay, redeem, repurchase, defease, cancel or otherwise terminate any indebtedness or guarantees of Conversant or its subsidiaries;

 

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    sell, lease, license, transfer, mortgage, encumber or otherwise dispose of any properties or assets having a value in excess of $2,000,000 individually or $10,000,000 in the aggregate to any person other than to Conversant or a wholly-owned subsidiary of Conversant or cancel, release or assign any material indebtedness or any such person owed to it of any claims held by it against any such person;

 

    acquire any other person or business of any other person or make any investment in any person either by purchase of stock or securities, contributions to capital, property transfers or purchase of property or assets;

 

    make any capital expenditures other than those not in excess of $4,000,000 for the fiscal year ending December 31, 2014 or capital expenditures not in excess of $4,000,000 in any fiscal year following the fiscal year ending December 31, 2014;

 

    enter into, terminate, materially amend or waive any material right under any of its material contracts;

 

    (i) establish, adopt, amend, enter into or terminate any collective bargaining agreement or benefit plan or commence an enrollment period under any benefit plan that provides health and welfare benefits, (ii) increase the compensation, perquisites or benefits of any current or former directors, officers, employees, consultants, independent contractors or other service providers, other than in the ordinary course of business consistent with past practice and not to exceed in the aggregate an amount of $1,500,000 on an annualized basis, (iii) pay or award any bonuses or other non-equity or incentive compensation, (iv) accelerate any rights or benefits under any benefit plan or (v) fund any rabbi trust or similar arrangement;

 

    hire employees at the executive level or higher or any other employees;

 

    terminate any employees or otherwise cause employees to resign other than for cause or poor performance;

 

    implement or adopt any change in accounting principles or methods, other than as may be required by GAAP;

 

    commence, settle or compromise any litigation, claim, action, threat of lawsuit or proceeding or other investigation other than settlements of litigation for an amount of up to $1,000,000 in the aggregate that do not impose material limitations on the operation of business;

 

    make any material tax election, change any material tax election, change any material tax accounting method, file any material amended tax return or settle or compromise any material tax proceeding, request any material tax ruling or knowingly surrender any claim for a material refund of taxes;

 

    enter into any new line of business;

 

    materially reduce the amount of insurance coverage or fail to renew any material existing insurance policies;

 

    conduct cash management practices other than in all material respects in the ordinary course of business consistent with past practice;

 

    amend in a manner that adversely impacts in any material respect the ability to conduct business, terminate or allow to lapse any of its material permits;

 

    cancel, abandon or otherwise dispose of any intellectual property owned by Conversant or disclose trade secrets to any third party;

 

    make or effect any transactions involving the repatriation of cash or other property into the United States from outside the United States by way of a dividend, a distribution or any other transaction not requested by Alliance Data;

 

    without providing Alliance Data with a reasonable opportunity to review and comment in advance of such action, send any written communications to employees regarding the merger agreement or make any representations that are inconsistent with the merger agreement; or

 

    take, commit or agree to take any of the foregoing actions.

 

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The restrictions described above are subject to important exceptions and qualifications (including materiality and “ordinary course of business” qualifications) set forth in the merger agreement and/or the disclosure schedules to the merger agreement.

The merger agreement contains a number of specific restrictions on Alliance Data and its operations following the execution of the merger agreement. Under these restrictions, Alliance Data and the Merger Subsidiary may not, subject to certain exceptions or unless Conversant agrees in writing:

 

    make, declare, set aside or pay any dividend or make any other distribution on or redeem, purchase or otherwise acquire any shares of its capital stock;

 

    adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, or other reorganization, other than the merger;

 

    amend the organizational documents of Alliance Data or the Merger Subsidiary or otherwise take any action to exempt any person from any provision of such organizational documents; or

 

    take, commit or agree to take any of the foregoing actions.

The restrictions described above are subject to important exceptions and qualifications (including materiality and “ordinary course of business” qualifications) set forth in the merger agreement and/or the disclosure schedules to the merger agreement.

Other Agreements

The merger agreement also contains the following provisions that apply during the period beginning with the signing of the merger agreement on September 11, 2014 and ending at the earlier to occur of the effective time of the merger or the termination of the merger agreement:

 

    Proxy Statement/Prospectus; Registration Statement: Alliance Data and Conversant are required to jointly prepare and file with the SEC this proxy statement/prospectus and the registration statement on Form S-4 of which this proxy statement/prospectus forms a part, or the Registration Statement.

 

    Conversant Stockholder Meeting: Promptly after the Registration Statement is declared effective by the SEC, Conversant is obligated to take all action necessary to call, give notice of and convene a meeting of its stockholders, or the Conversant Special Meeting, to consider the Merger Proposal. Conversant will also cooperate in good faith with and keep Alliance Data informed regarding its solicitation efforts and voting results following the dissemination of this proxy statement/prospectus to its stockholders.

 

    Regulatory Approvals; Efforts: Each of Conversant and Alliance Data must use reasonable best efforts to take and do all reasonable things necessary to consummate and make effective the merger, including, among other things, the preparation and filing of all forms, registrations and notices required to be filed to consummate the merger, the satisfaction of all conditions to consummating the merger, taking all reasonable actions necessary to obtain any consent, authorization or approval or exemption by any third party, including any governmental entity required to be obtained in connection with the merger, defending