Alliance Data Systems Corporation (NYSE: ADS) shares resumed trading today after the company announced that it had voluntarily dropped its lawsuit against The Blackstone Group (NYSE: BX). The two companies have been involved in a heated lawsuit over a botched acquisition that came amid turmoil in the credit and debt markets. Many shareholders are now speculating that the two have reached an agreement that could help propel shares substantially higher. So, should you look at picking up some Alliance Data shares ahead of any announcement?

Alliance Data, which provides credit card services for retailers, sued Blackstone in an effort to force them to carry out the terms of a May 2007 proposal to buy the company for $81.75 per share ($6.4 billion). The deal fell apart as funding for private equity became more expensie amid turmoil in the debt markets. Blackstone argued that the operational and financial burdens on the company could not be reasonably assumed given these new developments. However, the private equity firm did say that it was committed to working toward the closing of its acquisition of the company.

Alliance Data Systems is currently trading at $55.06, which is substantially lower than the initial $81.75 per share buyout price. The fact that Alliance Data dropped the lawsuit suggests that they were able to work out some kind of an agreement with Blackstone that could resolve the situation. And finally, given the fact that the private equity firm was reportedly looking toward closing the acquisition, that seems to be the most likely conclusion. However, it is highly unlikely that the acquisition will close for the original $81.75 given the deteriorations in the credit market and debt markets.

So, what is a fair valuation? Well, Alliance Systems recently posted a 14% drop in earnings after losses from a business unit sale and from its failed buyout. However, revenues were up about 15% to $602.7 million when estimates were looking from $601 million. Meanwhile, the company maintained that it could generate double-digit organic growth in both operating and adjust EBITDA. It was upgraded shorly thereafter by several analysts and has since risen from $39 per share to its current levels. Many now peg its value closer to $65 to $70 in the event of a buyout - still a healthy premium to the current price.

In the end, Alliance Systems appears to be heading towards a resumed buyout but it still remains very questionable. The valuation in the buyout could be dropped to $65 to $70 per share and investors must multiply that by the probability of a buyout in order to determine how much they’d be willing to pay now. Regardless, this is definitely a stock that it worth watching!

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