Ant Financial, a digital payment subsidiary of ecommerce giant Alibaba, is set to buy American money transfer company MoneyGram for an estimated $880 million.
Alibaba to Buy US–based MoneyGram for $880m
Alibaba’s Ant Financial, which has over 630 million customers, will buy out MoneyGram with all its 350,000 outlets spread out across 200 countries.
The buyout is still awaiting a nod from the US Committee on Foreign Investment, the concerned regulatory body that is in charge of reviewing foreign acquisitions of American companies as a procedure for ensuring national security.
Greater access, security and simplicity
According to the chief executive at Ant Financial, Eric Jing, the merger will offer customers of both companies an opportunity to access more channels and greater security when remitting funds more so in some of the world’s largest economies including China, USA, Philippines, Mexico and India.
In China in particular, Ant Financial boasts a large share of the online payment market. Acquiring MoneyGram could further boost Ant Financial’s lead especially abroad given the mounting domestic competition posed by rivals such as the WeChat payment system.
This latest acquisition by a Chinese firm comes amidst growing tension between the US and China. Indeed, during his campaign, President Trump was skeptical about the US continuing to pursue its One China policy, something that rubbed the Chinese state the wrong way. Mr. Trump is also adamant about imposing massive tariffs on Chinese imports.
Last December, founder of Alibaba, Jack Ma, met with Mr. Trump who said his meeting with Mr. Ma was ‘great’. In September 2014, Mr. Ma floated Alibaba on the New York Stock Exchange, amassing $25 billion.
If the MoneyGram buyout is approved, it will become the second acquisition in the US by Alibaba after acquiring EyeVerify for $70 million. A Missouri–based startup, EyeVerify uses biometric technology to secure online transactions and data.
Jump in share prices
Following news of the merger worth $880 million, MoneyGram shares jumped to close at $12.92 per share. MoneyGram share are being offered at13.25 per share for cash, which is lightly above 14% of the share closing price on Thursday. Over the past 12 months, MoneyGram has seen a doubling of its stock while Alibaba shares rose 49%.
Mike Grondahl, a Northland Capital Markers analyst noted, “Since the recapitalization of 2009, MoneyGram has faced some challenges but (with this merger) it has finally found a home.”
Now based in Dallas, MoneyGram experienced serious liquidity issues in 2008 due to its investments in risky asset–backed securities. The firm was however rescued in a debt and equity deal that involved Goldman Sachs and private equity firm Thomas H. Lee Partners LP, its largest shareholder with a 44.5% stake.
MoneyGram’s roots date as far back as 1940 in Minneapolis, where it began as a small money order firm. It is now the second largest money transfer service after Western Union Co.
Ant Financial has indicated that it would refinance the outstanding debt of $937.3 million held by MoneyGram.