The MoneyGram Acquisition — Is A Bidding War Coming Soon?

Who said that money transmitters with large physical footprints weren’t sexy?

In a turn of events — surprising enough that if it had happened two weeks from now we might have been tempted to write it off as an April Fool’s joke — Euronet has thrown in an unsolicited bid to acquire MoneyGram.

Divulged yesterday morning, the approximately $1 billion offer comes about a month and a half after MoneyGram announced that it had agreed to be acquired for $880 million by the Ant Financial Services Group, a Chinese online payment company spun out of Jack Ma’s Alibaba Group.

“We are going to see, when this deal goes through, capabilities getting built out between our two organizations in a much more robust and dynamic way,” MoneyGram CEO Alex Holmes told Karen Webster shortly after the Ant Financial news broke. “Our goal is to really create something transformational, and I think this will push a lot of players in the U.S. and around the world to rethink how they are competing.”

Holmes was more right at the time than he knew, and the move certainly pushed at least one player in the U.S. — in Leawood, Kansas, specifically — to start rethinking their competitive strategy, just not after the deal went through. Instead, they decided that they’d rather stop that deal from going through at all and create a new one.

And one, Euronet noted, which also offers the possibility of a faster and more seamless closing and requires a good deal less regulatory scrutiny.

So what are the nuts and bolts of the deal? Will the regulatory environment be the deciding factor, or are we in for a good old fashioned bidding war?

By the Numbers

Apart from the nearly billion dollar buy price, the acquisition agreement will also include Euronet assuming about $940 million of MoneyGram’s outstanding debt.

All in, the offer represents a premium of about 15 percent over the Ant Financial offer of $880 million ($13.25 per outstanding share) and a 28 percent premium over the closing price on the final day of trading prior to the transaction announcement on Jan. 26, 2017.

Euronet’s core business is payment and transaction processing services to financial institutions. It has a network of about 35,000 ATMs, 163,000 payment card terminals and a presence in 160 countries. It also has a history of acquisition: It acquired popular foreign currency site XE in 2015 and Epay and HiFix over the last several decades.

MoneyGram has over 2 billion bank, mobile and virtual accounts, a presence in 200 countries, 350,000 agent locations and a little over 35,000 ATMs.

Ant Financial, the other suitor, has 450 million users in China and is best known as the parent firm of Alipay and the Alibaba digital banking and financial services platform. It has a very limited presence outside of China, which is why the MoneyGram acquisition represented a significant boost for them in both geographic terms and access to a boatload of bank accounts that they could add to their checklist of financial services assets.

Regulatory Issues

Apart from being at the table with a larger financial offering, Euronet notes that it also has a much more direct and seamless path to a completed deal than Ant Financial does.

“The proposal offers stockholders a clear and significantly more certain path to a faster closing, with no required review by the Committee on Foreign Investment in the United States (CFIUS) and no closing condition related to securing change of control consents covering money transmitter licenses in the jurisdictions in which MoneyGram operates,” Euronet noted in a statement.

Euronet’s CEO Michael Brown made the point somewhat more forcefully during a conference call immediately following the announcement. Brown noted that while Euronet will face a standard antitrust screening, Ant Financial will face the CFIUS process, which some suggest might be tricky.

“This is [a] very complicated and uncertain path to closing,” Brown said, “and we have noted with interest that already members of Congress and members of [the] congressional commission have raised concerns about the Ant Financial transaction.”

Robert Pittenger and Chris Smith, two Republican congressmen, recently questioned MoneyGram’s agreed deal with Ant Financial in an open letter. The politicians, who respectively sit on committees overlooking illicit financial affairs and China-related affairs, said that the Chinese government’s stake ownership in Ant Financial was a matter of concern.

“Through MoneyGram, the Chinese government could use information on remittances to conduct retribution against the families of dissidents and democracy activists, as well as those who assist them,” the Congressmen wrote.

Moreover, 10 Chinese acquisitions of U.S. targets were “scuppered” last year, according to The Financial Times. The current political mood in Washington since Trump’s election has only gotten more wary of big ticket Chinese acquisitions, especially for firms with ambitions as big as Ant’s — which is reportedly heading toward an IPO later this year.

What’s Next

MoneyGram’s stock had a great day on Wall Street as this news broke, with stock prices spiking 25 percent.

This means investors are fairly certain that a bidding war is soon to come — and perhaps a pretty spectacular one, given that the starting price in this auction is currently $1 billion.

As of now, Ant Financial has affirmed that it remains committed to completing the MoneyGram deal.

Euronet is being advised on its bid by Wells Fargo Securities and the law firm Gibson, Dunn & Crutcher.