US blocks MoneyGram sale to China’s Ant Financial

A US government panel rejected Ant Financial’s acquisition of US money transfer company MoneyGram International over national security concerns, the companies said on Tuesday.

This is the most high-profile Chinese deal to be torpedoed under the administration of US President Donald Trump.

The collapse of the $1.2bn deal represents a blow for Jack Ma, the executive chairman of Chinese internet conglomerate Alibaba Group Holding, who owns Ant Financial together with Alibaba executives.

He was hoping to expand Ant Financial’s footprint amid fierce domestic competition from Chinese rival Tencent Holdings’ WeChat payment platform.

Ma, a Chinese citizen who appears frequently with leaders from the highest echelons of the Communist Party, had promised Trump in a meeting a year ago that he would create 1-million US jobs.

MoneyGram shares were down 8.5% at $12.06 in after-market trading.

The companies decided to terminate their deal after the Committee on Foreign Investment in the US (CFIUS) rejected their proposals to mitigate concerns over the safety of data that can be used to identify US citizens, according to sources familiar with the confidential discussions.

"Despite our best efforts to work cooperatively with the US government, it has now become clear that CFIUS will not approve this merger," MoneyGram CEO Alex Holmes said.

Review process

A standard CFIUS review lasts up to 75 days and the companies went through the process three times to address concerns.

The additional security measures and protocols that the companies suggested failed to reassure CFIUS, the sources said.

The US Treasury said it was prohibited by statute from disclosing information filed with CFIUS and declined to comment on the MoneyGram deal.

The US government has toughened its stance on the sale of companies to Chinese entities, at a time when Trump is trying to put pressure on China to help tackle North Korea’s nuclear ambitions and to be more accommodative on trade and foreign exchange issues.

The MoneyGram deal is the latest in a string of Chinese acquisitions of US companies that have failed to clear CFIUS reviews.

They include China-backed buy-out fund Canyon Bridge Capital Partners’ $1.3bn acquisition of US chip maker Lattice Semiconductor; and Chinese buy-out firm Orient Hontai Capital’s $1.4bn acquisition of US mobile marketing firm AppLovin.

In November, China Oceanwide Holdings Group and Genworth Financial extended a deadline to April 1 for the Chinese group’s planned $2.7bn takeover of the US life insurer.

The demise of the MoneyGram deal is also the latest example of how CFIUS’s focus on cyber security and the integrity of personal data is prompting it to block deals in sectors not traditionally associated with national security, such as financial services.

Other US financial services deals by Chinese companies awaiting CFIUS approval include HNA Group’s acquisition of hedge fund-of-funds firm SkyBridge Capital from Anthony Scaramucci, the Trump administration’s former communications director.

SkyBridge and HNA did not immediately respond to requests for comment.

Dallas-based MoneyGram has about 350,000 remittance locations in more than 200 countries.

Ant Financial was looking to take over MoneyGram not so much for its US presence but to expand in growing markets outside China.

Ant Financial and MoneyGram said they would now explore and develop initiatives to work together in remittance and digital payments in China, India, the Philippines and other Asian markets, as well as in the US.

This co-operation would take the form of commercial agreements, one of the sources said.

Political lobbying

Any arrangements reached by Ant Financial and MoneyGram that do not involve a transaction would not be subject to review by CFIUS.

Some US legislators, including Republican senators Pat Roberts and Jerry Moran, had written to Treasury Secretary Steven Mnuchin, who also serves as chairman of CFIUS, to express concern that Ant Financial’s acquisition of MoneyGram could pose national security threats, arguing that the information of US citizens, including military personnel, could be compromised.

Ant Financial had argued that MoneyGram’s data infrastructure would remain in the US, with personal information encrypted or held in secure facilities on US soil.

It had also pointed to existing US regulations that call for such protections.

Ant Financial clinched an $18-per-share all-cash deal to acquire MoneyGram in April, seeing off competition from US-based Euronet Worldwide, which had made an unsolicited offer for MoneyGram and openly lobbied US legislators, saying Ant’s proposal created a national security risk.

Ant Financial said it paid MoneyGram a $30m termination fee for the deal’s collapse.

SOURCE:BUSINESSDAY