UPDATE 1-Alliance Data waives Blackstone share restriction

(Adds background, detail)

NEW YORK, Aug 31 (Reuters) - Alliance Data Systems Corp (ADS.N: Quote, Profile, Research, Stock Buzz) said on Friday that it would allow a Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) affiliate to purchase up to 5 percent of its outstanding common stock before its planned $6.8 billion sale to the private equity firm.

Alliance Data, a Dallas-based business and marketing services company, said Blackstone had sought permission to acquire its shares in advance of the merger. The waiver was necessary because a confidentiality agreement prohibited Blackstone from buying Alliance Data securities.

The company expects the acquisition to close in the fourth quarter. It said the waiver did not modify any other terms of the merger agreement.

Blackstone has received debt and equity commitments for the full amount necessary to complete the transaction, Alliance Data said.

In May, the company accepted Blackstone's takeover bid of $6.8 billion, or $81.75 a share.

Alliance Data stock was up $2.09, or 2.8 percent, at $78.04 in morning New York Stock Exchange trade.

The company's shareholders approved the merger earlier this month.

(Reporting by Jonathan Keehner)