Marathon Deal Hamstrung

The blank-check IPO appears to be on ice for the moment.
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Wall Street wheeler-dealer Michael Gross is having some trouble getting his $300 million IPO for

Marathon Acquisition

out of the starting gate.

Shares for the so-called blank-check company were expected to

begin trading on Wednesday, after pricing at $8 each late Tuesday. But sources say the initial public offering is on hold because the

Securities and Exchange Commission

has yet to give its official blessing.

The delay has left Gross, one of the founders of the $10 billion private equity outfit Apollo Management, spinning his wheels and raised the possibility the deal could be either postponed or scaled back. In fact, brokers say the Marathon offering is being listed by underwriters as an "open ticket" deal -- meaning brokers are the free to put as many customers as possible into the offering.

Normally, shares in an IPO are hard to come by because so many investors are looking to get their hands on them. The fact that there's no restriction on allocating the 37.5 million shares in the deal is an indication the IPO is not in much demand.

In fact, many hedge funds that have been traditional investors in blank check IPOs say they are taking a raincheck on the Marathon deal, which many believe is simply too ambitious. A broker at small investment firm that has underwritten a number of blank-check IPOs says none of his clients are interested.

Gross, who recently resigned as chairman of

Apollo Investment

(AINV) - Get Report

, the publicly traded investment outfit launched by the private equity firm, did not return a phone call to his Manhattan office. A spokeswoman for

Citigroup

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, one of the investment banks underwriting the deal, didn't comment.

At $300 million, the Marathon deal is the biggest blank check to date. It even ranks as one of the bigger IPOs of the year. But the Marathon deal is trying to come to market during what has been a brutal summer for IPOs, with many deals being postponed or pricing well below their anticipated range.

To be sure, the delay in getting the SEC to sign-off on the IPO may be just a matter of the bureaucratic wheels slowing in Washington, D.C. But some suggest regulators may be taking a hard look at blank-check IPOs given the surge in these deals the past three years.

An SEC spokesman declined to comment. Critics note it's unusual for the underwriters to put an IPO on the calendar if they aren't all but certain the SEC will give the go-ahead on the offering.

The other underwriters on the Marathon deal are

Ladenberg Thalmann

(LTS) - Get Report

and

UBS

(UBS) - Get Report

.

Wall Street has been marketing blank checks as a relatively safe way for hedge funds and others to invest in private equity. Investors in a blank-check IPO are guaranteed to get back most of their money if the company can't find a suitable business to acquire within 18 months. In essence, an investment in a blank check is a gamble on the resumes of the company's management team and its ability to pull a rabbit out of the hat.

But of the roughly 65 blank-check companies that have gone public since August 2003, only eight have actually completed a merger with an existing business. Another 19 companies have tentative merger agreements.

That means there are around 38 blank-check companies, with a little over $3 billion in cash on hand, still looking to make deals. The math for blank-check enthusiasts looks even worse when factoring in the 43 IPOs in registration that are seeking to raise an additional $3.6 billion from investors.

Cynics say the last thing Wall Street needs is another blank-check IPO. But some had hoped the Marathon deal would find a way through the IPO clutter because of Gross' reputation as a shrewd buyout artist.