Knockout

Euronet's MoneyGram Bid May Squash Ant

The Jack Ma-backed Chinese payments company won't want to top Euronet when it has other U.S. options.
MONEYGRAM INTERNATIONAL INC
-0.13
As of 2:26 PM EDT
8.59 USD
EURONET WORLDWIDE INC
-0.40
As of 2:28 PM EDT
76.38 USD

Some New York traders got a delightful snow-day surprise Tuesday morning. MoneyGram International Inc. -- nearly seven weeks after agreeing to a mediocre takeover offer from China's Ant Financial -- just got a potentially showstopping rival proposal from Euronet Worldwide Inc. 

Bidding wars aren't as common as they were before the global merger boom of the last couple years when U.S. stocks were cheaper. However, Ant Financial left the door wide open to one. Its $13.25-a-share all-cash offer was only 9 percent higher than MoneyGram's average closing price in the 20 trading sessions leading up to the Jan. 26 deal announcement. Investors had been expecting something higher and temporarily drove the stock above $15 when news of the transaction first leaked without details on price.

Simmer Down

Traders didn't foresee the competing bid for MoneyGram. Now, those betting Ant will top Euronet's gatecrashing offer risk being wrong again:

Source: Bloomberg

Investors that stuck around may get their $15 and then some. Euronet is offering $15.20 apiece, also entirely in cash. And because it's a U.S. company (based in Leawood, Kansas), buying Dallas-based MoneyGram wouldn't require approval from the obscure yet powerful Committee on Foreign Investment in the U.S., aka CFIUS, which investigates sensitive purchases by foreign acquirers. A sale to Ant, an affiliate of Jack Ma's Alibaba Group Holding Ltd., is subject to a CFIUS review -- and approval isn't a sure thing.

CFIUS has been expected to have a higher profile in President Donald Trump's administration, given his more nationalistic views and rhetoric about protecting American jobs. The Ant-MoneyGram deal in particular hits on touchy subjects for Trump: A Chinese suitor going after a business in a red state that's used by immigrants to wire back money to their homes in places such as Mexico.

In its favor, an Ant deal for MoneyGram could be seen as a springboard for helping Ma create the 1 million American new jobs he's talked about with Trump, but that argument may be moot at this point. While neither Ant nor MoneyGram has responded publicly yet to Euronet's bid, I wouldn't count on Ant matching. Traders buying MoneyGram shares at nearly $16 now may be getting ahead of themselves.

Transfer of Power

Euronet, which has almost 34,000 ATM machines, has been increasing its revenue from money transfers. Now it's looking to join forces with MoneyGram in that highly competitive market

Source: Bloomberg

Ant would have to raise its offer 15 percent to potentially knock out Euronet. This seems unlikely as the target isn't as strategically important to Ant as it is to Euronet, which generated 41 percent of its revenue from money transfers last year. As a broader Chinese payments company, Ant is predominantly seeking a stake in the U.S. market, which it could get from a number of similar companies, such as VeriFone Systems Inc. and Green Dot Corp., which both surged Tuesday after DealReporter flagged them as alternative candidates for Ant. Western Union Co., which jumped 4 percent, could be in play, too. 

Overseas Expansion

Like Ant, Euronet also offers MoneyGram the chance to enhance its international presence

Source: Bloomberg

Note: While Euronet's figures are for 2016, MoneyGram's are for 2015 as the company doesn't report year-end results until March 16.

Euronet is also so confident in its offer that it's included a $69 million termination fee payable to MoneyGram should it get blocked on antitrust grounds. That's about a quarter's worth of free cash flow for Euronet. If Ant's offer fails its CFIUS review, MoneyGram gets only $17.5 million. Keep in mind that should MoneyGram's board change its recommendation in favor of the Euronet proposal, the company has to pay Ant $30 million, which is about 57 cents a share.

Even then, Euronet's bid is far superior to Ant's. Time for Ant to march on.

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

    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

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