FINANCE: Ant Makes Case, No New Offer, for MoneyGram Buy

Bottom line: Ant Financial’s open letter to MoneyGram could hint at a new raised offer coming soon for the company, though rival suitor Euronet is likely to bid equally aggressively and has a slightly better chance of winning the contest.

Ant makes case to MoneyGram workers, US politicians

Three weeks after being surprised by an unsolicited counterbid for US money transferring specialist MoneyGram, China’s Ant Financial is finally speaking out on the matter beyond its initial reaction to the rival bid. The former financial unit of e-commerce giant Alibaba (NYSE: BABA) frankly isn’t saying much about future plans in its open letter to the MoneyGram community, and there’s no hint on whether it will raise its offer for the US company.

Instead, the letter seems aimed at reassuring MoneyGram employees that their jobs will be safe, and on reassuring wary government officials that information on MoneyGram users won’t be recklessly used. Those messages look squarely aimed at quelling the very real possibility that such a deal could get vetoed by Washington on national security grounds, even though the jobs issue doesn’t really fall into that category.

The bigger backdrop to all this is a xenophobic US President Donald Trump, who says China steals US jobs. Others are more concerned on the potential for spying, which was in focus when two members of the US House of Representatives sent a letter this week to Washington saying any such purchase deserves extra scrutiny.

From my perspective, the bigger question people should be asking is: Why should MoneyGram continue with Ant’s offer when it has a much better deal from unsolicited suitor Euronet (Nasdaq: EEFT)? I have to admit I may be unaware of potential bad blood between US-based Euronet and MoneyGram, since the former has apparently tried to buy the latter before. But regardless, the Euronet deal does seem a bit better not only due to the lack of controversy but also for the more obvious reason that it’s 15 percent higher than Ant’s original offer early this year.

All that said, let’s zoom in on Ant’s open letter, whose first three items reassure everyone that it values MoneyGram’s team, its customers and its agents and partners. (company announcement) That part seems squarely aimed at the jobs part of the equation, which would be especially significant to Trump and his concerns that Ant might move some of MoneyGram’s operations to China.

Making its Case

Later in the letter, Ant points to its purchase last fall of US-based EyeVerify, saying it has made significant investments in the company and doubled its workforce since then. It adds it would take a similar approach to MoneyGram. Here it’s worth noting that these are two very different animals, since EyeVerify is a much younger and smaller company with new technology whereas MoneyGram is much older school and probably far larger.

Next there’s the last point in the letter, which seems aimed at the national security worriers. That part has Ant saying protecting the privacy of MoneyGram’s 650 million worldwide users is paramount, and also that it will keep all information on US-based users on US-based servers. That sounds remarkably similar to commitments that US companies like Apple (Nasdaq: AAPL) have made recently, under Beijing requirements that information on information on their China-based be stored in China.

Ant also says it will continue to invest in MoneyGram’s compliance and anti-money laundering systems, which speaks to potential concerns that wealthy Chinese might try to use the service to move illegally earned money outside of China.

Nowhere in the letter is there mention of a new offer that might come closer to matching the one from Euronet, which has previously made a case that its own offer would be much less controversial. But the timing of this open letter makes me suspect that a new higher offer could be coming soon, since Ant has plenty of cash and would have no problem raising its bid. In that context, this open letter appears to be aimed at soothing investors, politicians and MoneyGram workers in advance of such a new bid.

At the end of the day, I would say this contest is still very open, and we could see several more bids from both sides before a winner emerges. The strategic rationale for both suitors is quite strong, meaning each is probably willing to pay a big premium. I do think that Euronet probably holds a slight trump card, no pun intended, due to its status as a US company. Accordingly, I would still give it a slightly better chance of winning this contest, despite any reassurances we might get from Ant.

 

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