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Blue Harbour Opens New Position in Alliance Data Systems

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Blue Harbour and Alliance Data Systems

Blue Harbour initiated a new position in Alliance Data Systems (ADS) in 4Q14. The fund bought 1,153,390 shares worth $43 million. According to the latest 13F filings for 4Q14, ADS accounts for 1.41% of the hedge fund’s total portfolio.

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Alliance Data Systems posts better-than-expected Q4 results

Alliance Data Systems (ADS) reported Q4 earnings of $3.23 per share, beating consensus estimates by $0.13. Q4 revenue of $1.5 billion was in line with consensus estimates. ADS’s peers in the industry, American Express (AXP) and Discover Financial Services (DFS), also reported their quarterly earnings. AXP reported Q4 revenue of $9.1 billion, up 7%, while DFS reported a 4% decline in fourth quarter 2014 revenue.

Alliance Data Systems posted a revenue increase of 30% year-over-year in 4Q14. Favorable growth in North American digital marketing spend and acquisitions drove this increase.

Operating profitability as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was up 32% to $383 million during the fourth quarter. On a per-share basis, core earnings excluding acquisition-related charges were up 44% to $3.45.

ADS completes acquisition of Conversant

In December 2014, ADS completed the acquisition of Conversant Inc. (CNVR) in a deal worth $2.3 billion. Cash of approximately $991.5 million and 4,608,630 shares of Alliance Data financed this transaction. ADS funded the cash component with borrowings from its credit facilities.

This acquisition deal should expand ADS’s offerings in mobile, display, video, and digital channels. The business combination should also diversify the revenue mix of ADS and complement the company’s existing business model at the same time. Conversant will operate as part of the Epsilon segment.

Overview of Alliance Data Systems

With annual revenues of $5.3 billion, ADS is a leading provider of customized marketing and loyalty solutions. The company operates in the following three business divisions: Alliance Data Card Services, Epsilon, and LoyaltyOne.

These business divisions provide credit card programs, data-driven marketing services, and loyalty programs across multiple touch points.

ADS makes up 0.42% of the Vanguard Information Technology ETF (VGT). Investors can also gain exposure to ADS through the iShares Morningstar Mid-Growth ETF (JKH) in which ADS has a portfolio weighting of 1.29%.

The next article in the series will look at Blue Harbour’s new position in WebMD Health Corp. (WBMD).

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