China Investment Screwed ANT FINANCIAL-MONEYGRAM deal?

Ant Financial, the digital payments arm of Chinese ecommerce group Alibaba, has scrapped a merger with Dallas-based MoneyGram International, having failed to satisfy the US government that the deal posed no risk to America’s national security. Ant announced a deal to buy MoneyGram for about $880m in cash almost a year ago, saying it would jump-start its global growth strategy. The Huangzhou-based company then saw off a competing bid from Euronet, a money-transfer rival based in Kansas, by improving its offer to $1.2bn. But on Tuesday Ant and MoneyGram said that they had failed to obtain clearance for the deal from the Committee on Foreign Investment in the United States, an arm of the Treasury Department which vets inbound acquisitions for security implications.

Instead, the two sides will enter into a “strategic cooperation”, under which they will explore initiatives to provide customers in the US and Asia with cheap and quick money-transfer services.  Shares in MoneyGram, which had a market capitalisation of $722m at market close, fell as much as 10 per cent in after-hours trading.  Alex Holmes, chief executive of MoneyGram, said that despite the company’s “best efforts to work cooperatively” with the US government, it had become clear that Cfius would not greenlight the deal.

“The geopolitical environment has changed considerably since we first announced the proposed transaction,” he said. “We are disappointed in the termination of this compelling transaction, which would have created significant value for our stakeholders.” 

Euronet issued a statement following the announcement of the scrapping of the deal, saying it continued to “believe there is compelling commercial logic to a combination between Euronet and MoneyGram”. But it added that “significant developments have been disclosed by MoneyGram since Euronet’s offer” and that while it viewed a transaction as logical, it gave no guarantee that any offer would be made. The withdrawal comes as a number of Chinese investments targeting US companies have hit the buffers. Lawyers blame a rise in trade tensions between Washington and Beijing, and a slowdown in Cfius’ review process, caused largely by under-staffing. The deeper we get into this administration, the clearer it appears that scepticism about Chinese deals has sharply increased John Reynolds, Davis Polk partner Late last month Cowen, a New York-based boutique investment bank, scrapped a $275m investment from CEFC China Energy, blaming delays and “uncertainty” in securing Cfius approval.

Oceanwide’s $2.7bn acquisition of Genworth Financial, announced in October 2016, remains in the balance. “The deeper we get into this administration, the clearer it appears that scepticism about Chinese deals has sharply increased,” said John Reynolds, a partner at Davis Polk in Washington. Ant Financial, a spin-off from the Alibaba ecommerce group, has more than half of China’s fast-growing $5.5tn mobile payments market. Launched in 2004 as Alipay, a PayPal-type service to facilitate payment on Alibaba’s ecommerce platforms, it currently has 520m users.  MoneyGram was Ant’s first major bid in the US, although it has bought a string of stakes in mobile payment companies in India, Thailand and South Korea over the past couple of years. Further afield it has signed agreements with dozens of banks and payments companies to give its customers the ability to pay for goods using its app. In the US, too, Alipay is accepted at about 175,000 locations and has partnerships with payment providers such as First Data and Verifone.

The failure of the MoneyGram deal is a big blow to Ant and a personal setback for Doug Feagin, a former Goldman Sachs partner who joined the company in June 2016 to spearhead its international growth efforts.  Recommended MoneyGram: ant eaten Delays and suspicions dog China-US investments Trump’s China strategy: trade war or American game In the merger announcement, Ant had made an unusually explicit offer to protect jobs at MoneyGram, using language that appeared to nod to the US government’s pledge to put the interests of American workers first and foremost. It is also likely to have made several proposals to safeguard the personal data of MoneyGram users, according to people familiar with the Cfius screening process. But Euronet was quick to stir trouble, arguing that Ant’s takeover should not be cleared because of the proximity to US military bases of many of MoneyGram’s vendors. In an April interview with the Financial Times, Euronet’s chief executive Mike Brown said it was dangerous to hand over the data of military officials to a company whose investors include Chinese state-backed companies, at a time when China was routinely hacking the US government. Ant has paid MoneyGram a break

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fee of $30m, according to Tuesday’s statement.

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