Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

MoneyGram International Inc. -- inadvertently one of the earliest targets of Donald Trump's nationalistic pronouncements on the campaign trail last year -- is now selling itself to a Chinese company. Let that sink in for a moment.

The deal will strengthen MoneyGram, a money-transfer service, at a time when a chunk of its business is expected to come under pressure due to President Trump's stance on Mexico with respect to both trade and immigration. Mexico represents 10 percent of all transactions for MoneyGram, according to Bloomberg Intelligence.

Money Flows
China's Ant Financial is acquiring MoneyGram, which many immigrants use to transfer money from the U.S. back home to their families. Here are the world's top 10 remittance-receiving countries:
Source: World Bank

The acquirer is Ant Financial, an affiliate of Alibaba Group Holding Ltd., the Chinese tech giant founded by billionaire Jack Ma. Under Ant's ownership, MoneyGram can probably expand further and faster internationally -- or into more "corridors," to use industry parlance -- where it faces stiff competition from larger rival Western Union Co. The deal will also help Ant's Alipay electronic payments system expand in the U.S.

The strategic logic is plain. But as for the price, it has to be a tad disappointing for MoneyGram's shareholders. Ant Financial is offering $13.25 a share in cash for the Dallas-based company, which is only 9 percent higher than the stock's average closing price for the past 20 trading sessions. These days, that's a minuscule takeover premium, especially for a growing business. Analysts project a 6 percent jump in MoneyGram's revenue this year, followed by an additional 5 percent increase in 2018 -- a faster clip than Western Union.

Scaling Up
The sale to Ant Financial may help MoneyGram step up its international growth and better compete against Western Union
Source: Bloomberg

MoneyGram shares had rallied about 70 percent since October, aided by the company's partnership with Wal-Mart Stores Inc. and a surge in remittances to Mexico. The Wall Street Journal reported the Ant deal earlier Thursday, which drove MoneyGram shares above $15 in early trading before they were halted. Then the news hit that the takeover price is only $13.25.

Pros And Cons
Ant Financial is offering only a small takeover premium to MoneyGram's recent trading level. But a deal could help shield the money-transfer business from the potentially adverse effects of President Trump's policies.
Source: Bloomberg

You know who probably won't be a fan of this deal? President Trump. He hasn't tweeted anything about it yet, but this merger hits at two very sensitive topics for him: China encroaching on America's turf, and the big, beautiful wall he wants built along the Mexico border to crack down on illegal immigration. At one point last year, Trump proposed cutting off the remittances that Mexican immigrants working in the U.S. send back home to their families until the country pays the U.S. for the wall's construction. On Thursday, he threatened to cancel his Jan. 31 meeting at the White House with Mexico President Enrique Pena Nieto if the nation rules out reimbursing the U.S. for the wall. 

CFIUS, the obscure agency within the Treasury department that's tasked with evaluating foreign acquisitions of U.S. assets, is likely to get a larger role under the Trump administration. That said, it's hard to see how CFIUS could argue that Ant's takeover of MoneyGram would be a national security threat. And if anything, the transaction could help shield MoneyGram from any repercussions of Trump's policies.

In the end, it's a smart deal that is likely to face more headline risk than real regulatory risk. And if Trump is a significant threat to MoneyGram's business, Ant's offer -- even at this low premium -- is worth cashing in on. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Although, Ma met with Trump at Trump Tower earlier this month to make nice with the new leader of the free world. They discussed how Alibaba could help create 1 million new U.S. jobs. So who knows?

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net