MoneyGram (MGI) is trading higher this morning after agreeing to be acquired by Ant Financial Services. MGI had been the subject of a bidding war between Ant Financial and Euronet Worldwide (EEFT), but now that Ant has raised its offer from $13.25/sh to $18/sh in cash, the MoneyGram board of directors has unanimously approved the deal. The transaction is valued at approximately $1.2 bln. Ant Financial will assume or refinance MoneyGram's outstanding debt.
Ant Financial, which is based in China, is privately held and its majority owners are its employees and members of the Alibaba Partnership (BABA). Ant focuses on financial e-commerce services serving small and micro enterprises, as well as consumers. Businesses operated by Ant Financial include Alipay, Ant Fortune, Zhima Credit and MYbank.
The deal has had some twists and turns and there is no guarantee it will go through. The rationale for Ant Financial is that buying MGI instantly gives it a global presence as MoneyGram is one of the world's largest cash remittance companies. However, after MGI had a deal with Ant in late January at $13.25/sh, Euronet Worldwide (EEFT) came in with an unsolicited bid to acquire MGI at $15.20/sh in cash. At the same time, despite Ant's assurances to keep MGI's headquarters in Texas, EEFT was lobbying US lawmakers saying they should not approve the deal with Ant because it created a national security risk.
MoneyGram and Ant Financial have already made some progress towards obtaining the regulatory approvals necessary to complete the transaction, including obtaining antitrust clearance in the US and filing for certain state licensing approvals. The transaction is expected to close in 2H17.
Last week, MGI countered some of Euronet's national security arguments. MGI made the point that there is a reason the company is named "Euronet" -- its operations are far from being American; rather they are primarily in Eastern Europe where the company was founded and is still heavily concentrated. Over 85% of its assets are outside of the US.
MGI also says that nearly all of Euronet's servers and data centers where its customer information resides are located outside of the US. Euronet has just two data facilities in the US. Also, Euronet was recently fined millions of dollars by regulators for a massive data breach that exposed more than 2 million credit card accounts, which MGI says raises real questions about its data security. MGI also argued that Euronet's acquisition of MoneyGram would reduce competition by consolidating the industry from three US players to two. Ant Financial's acquisition of MoneyGram will preserve three US players.
Following its acquisition, Ant says MoneyGram will operate as an independent subsidiary of Ant Financial and retain its brand, management team, IT infrastructure and headquarters in Dallas, Texas. All of MoneyGram's current procedures and protections related to data security and personally identifiable information will remain intact. MoneyGram will independently operate all its data systems and Ant Financial will not have access to any US customer data.
In sum, time will tell if the deal gets approved by US regulators. In the meantime, MGI shareholders have seen a huge move in the stock price in recent months. MGI was trading at $6 in late October 2016 and now it has an offer on the table to be acquired for $18 per share in cash. Western Union (WU), on the other hand, has been basically flat over the same time period.