Partnerships / Acquisitions

Looking Toward The Finish Line For MoneyGram’s Merger, But Then What?

Ant Financial may snap up MoneyGram, amid a $1.2 billion price tag, hurdling concerns over national security, too.  But Walmart lies in wait.  Smooth sailing to a merger approval might lead to rocky shoals afterwards.

“The readiness,” said Hamlet, “is all.”  To which we at PYMNTS will amend: “The readiness, and the government, is all.” 

The questions surrounding MoneyGram — namely, whether Ant Financial will snap up the firm, and when, and what will happen if it does — hinge on both readiness and the marbled halls of the Hill.

Beyond issues of national security, which we will get to in a moment, there’s a new threat in town in the form of a retailing giant — you may have heard of Walmart — that may make life tougher for the standalone company, should it stand alone, or Ant, should the brass ring be gotten and held firmly (though at arm’s length, as it promises). 

First, the purchase price. There may be a bidding war, or alternatively, the war volleyed through offers from Euronet and MoneyGram may be over. Ant Financial earlier this month boosted its price by a third, to $18 a share in cash, equating to $1.3 billion. That was a big jump over the $15.20 offered by Euronet.

At this writing, the price is $17.74, indicating at least, that traders believe no higher bid is forthcoming (rule of thumb: when the stock trades higher than the offer, the expectation is that higher bids are in the offing and in the wings). 

So to recap: Ant had signed an agreement in January to buy MoneyGram for $880 million, and Euronet came in with an offer for $955 million. The latest was the deal that crossed the $1.2 billion threshold.  MoneyGram backed the boosted Ant proposal, and Euronet has since said it has other plans in the hopper — should Ant win — staying pat on its proposal.     

The deal now hinges on stamps of approval from the U.S. government. Euronet and others have claimed that there are bigger issues afoot than price. Yes, the deal has board approval, but the regulatory hurdles are there and may be enough to derail an Ant-backed deal, if critics are right. That might be a consolation prize for Euronet, which may (or may not) look to try, and try again, after having not at first succeeded. 

The big gatekeeper here is the Committee on Foreign Investment (hereafter CFIUS) which is charged with looking after national security interests when deals go cross-border. China and U.S. relations are a bit fraught, North Korea notwithstanding (where both countries seem to have a bit of lockstep in geopolitics and defusing saber-rattling).

The issues of approval, at least via regulators, tie into money laundering and possible financing of terror outfits. To be clear, the argument is not that these activities are necessarily going on with MoneyGram or Ant, but that these activities could conceivably be made easier to conduct and harder to trace, and an additional caution for critics is that Ant is partially owned by the Chinese government. 

As has been reported too, the tech sector has been incrementally (though indirectly) vocal about what has been perceived as a playing field that is anything but level, as they have tried to gain entree into China.     

For its part, Ant has said that should MoneyGram join the fold, it will in fact be a separate, independent unit. Data that winds up on U.S. servers will stay on those servers, indicating that MoneyGram user stats and info will be shielded.

But, says Euronet, the location of the servers means little, and the company has said that data that crosses those servers is of the sensitive type, which includes everything from social security numbers to granular detail on transfers, offering up conduits, potentially, for misuse.   

Here’s another wrinkle.  Let’s say the deal goes through. Let’s say it does not. The competitive landscape is a little rockier even as late as this week, for MoneyGram. Walmart wants a place in the money business, and Walmart doesn’t tread all that lightly.

Just a few years ago the commerce behemoth started moving money via transfers, and sheer size and scale allows the company to compete on price, “big league,” to use a Trumpian phrase. Wednesday the company said it is lowering the fees it charges on money transfers to double digit percentages below peers and has dropped money transfer capability into the Bluebird app. Consider that transfers that are $50 or below have a $4 fee, where once that charge was $4.50; and in the range of $50 to $1,000, the cost is now $8, previously $9.50.  The savings for customers ramp into the hundreds of millions of dollars annually, said Walmart.  

MoneyGram, at this moment, per websites charges $5 and roughly $11.50 on similar tiers of transfers (though that $11.50 drops to 2 percent on levels of $500 to $10,000).

The point is that a pricing war may be in the offing. For MoneyGram, or for Ant/MoneyGram, the threat for margin erosion may be there. Maybe Ant won’t mind, looking for mindshare over margins. But then again, fighting a race to the bottom of the fee pool does have some impact.

Might a winner here for MoneyGram’s affections and assets have buyer’s remorse?

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