It looks like MoneyGram will not be bought by Ant Financial after all, as a U.S. government panel has officially rejected the deal over national security concerns.
The collapse of the $1.2 billion deal comes as a bit of a blow to Ant Financial and its co-owner Jack Ma. Ma is best known as the executive chairman of eCommerce mega-conglomerate Alibaba Group Holdings. Ma had promised Trump that he would create 1 million jobs in the U.S. during a meeting a year ago.
The Committee on Foreign Investment in the United States (CFIUS) shot down the joint proposals from MoneyGram/Ant aimed at mitigating data safety concerns affecting the privacy of U.S. citizens, according to sources close to the matter and reported by Reuters. That barrier, it seems, was deemed insurmountably high — and the two firms decided to terminate the deal rather than shoulder through.
“Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger,” MoneyGram Chief Executive Alex Holmes said in a statement on Tuesday.
The rejection does not come as a total shock, given the U.S. government’s recent increased interest in the sale of companies to Chinese-owned businesses. MoneyGram is one of many deals to founder in front of CIFIUS of late.
A Chinese Foreign Ministry spokesman, commenting on the denial, said cooperation on economic and trade matters was of mutual benefit.
“We hope the U.S. can create a fair and predictable environment for Chinese enterprises to invest and start up businesses,” the spokesman said.
That more or less neutral sounding language is a far cry from a commentary published in the state paper, which described the U.S. as “stuck in a zero-sum mentality.”
“China and the United States are about to ride a bumpy journey in trade in 2018 if the U.S. government goes its own way, and retaliatory measures by China could be on the table,” it said.
MoneyGram has approximately 350,000 remittance locations in more than 200 countries. Ant Financial was looking to take over MoneyGram — not so much for its U.S. presence, but to expand in growing markets outside of China. With the deal now permanently sidelined, the two firms have stated they will find other ways work together in remittance and digital payments in China, India, the Philippines and other Asian markets, as well as in the United States.
This cooperation will take the form of commercial agreements, one of the sources said.
[Ant Financial] is all about equal access to financial services globally. When we speak about financial inclusion that is open and supportive of the needs of society, both organizations fit squarely in the middle of that,” MoneyGram CEO Alex Holmes said. “Ant Financial wants to be in every country in the world. There are 7,000 employees of Ant Financial, but 6,800 are in China. Now, they will have 3,000 employees who aren’t in China who can now grow and expand Ant Financial services,” Homes told Karen Webster in an interview on the two firms’ mutual interests at this time last year.
Any arrangements reached by Ant Financial and MoneyGram that do not involve a transaction would not be subject to review by CFIUS.
“What is more likely to happen at this point is that MoneyGram will sell to another company, and one company that has shown interest in the past is Euronet,” said Gil Luria, an equity analyst at D.A. Davidson & Co.
Whether that interest is still there is a bit up in the air, however, given the following statement by Euronet as the news of the MoneyGram deal disillusion went public:
“Euronet continues to believe there is compelling commercial logic to a combination between Euronet and MoneyGram. However, significant developments have been disclosed by MoneyGram since Euornet’s offer, and Euronet has not conducted any evaluation of the business in that time. While we continue to view a transaction with MoneyGram as logical, there is no guarantee any offer will be made or any transaction will ultimately occur.”