FINANCE: US Squashes Ant Financial’s MoneyGram Dream

Bottom line: The collapse of Ant Financial’s purchase of MoneyGram reflects growing resistance from a Trump administration willing to mix business and politics in its relationship with China.

Ant’s purchase of MoneyGram sinks

In yet the latest sign that the Donald Trump administration intends to take a hard line towards Chinese M&A, Washington has killed a $1.2 billion deal that would have seen Alibaba-affiliated (NYSE: BABA) Ant Financial purchase US money-transfer specialist MoneyGram (Nasdaq: MGI). This particular development isn’t a huge surprise, since the deal was first announced about a year ago and its closure deadline was extended several times while the US hemmed and hawed on its national security review.

The de facto veto is also just the latest move by a Trump administration that has shown it won’t let US companies in the strategic tech and financial industries be acquired by Chinese counterparts. But this particular veto is also noteworthy because it’s one of the largest so far involving a purely private sector Chinese buyer. Up to now, nearly all the deals to be vetoed have come from buyers with strong links to Beijing, either directly or through government-supplied financing.

We’ll return to the broader implications for this latest veto shortly, but let’s start with a quick review of this slightly surprising ending to a story that has stretched on for quite a while now. It began about a year ago when Ant made its offer for MoneyGram as part of a global expansion plan. Ant is China’s largest privately owned fintech company, and its core asset is Alipay, the wildly popular electronic payments firm originally owned by Alibaba.

Attempting to stand on its own two legs following a spin-off from its e-commerce parent, Ant has built up a number of businesses in China’s young private financial services sector, but had made relatively little progress outside its home market. It was hoping to change that with the MoneyGram move, which originally saw it offer $880 million for the US company. An unexpected bidding war briefly erupted with another US company Euronet (Nasdaq: EEFT), before Ant upped its original offer to seal the deal.

But now it seems like that move was all for naught, with word that the deal was rejected by the Committee on Foreign Investment in the United States (CFIUS), the US body that reviews all cross-border purchases for national security implications. (English article) This was the third time for CFIUS to review the plan, after Ant revised its original offer twice to try to mitigate the agency’s concerns. At the heart of the matter was CFIUS’ concerns about privacy protection for MoneyGram’s millions of users.

A look at MoneyGram’s statement seems to indicate that CFIUS didn’t actually veto the deal outright, but instead was continuing to indicate it wasn’t satisfied with Ant’s assurances aimed at easing security concerns. That led the pair to decide they would never be able to satisfy the agency, leading them to drop their marriage.

From my perspective, CFIUS’ concerns are probably unmerited, at least in terms of sharing information with Beijing, since Ant is a private company and isn’t subject to Beijing’s whims for its offshore operations. But that said, Ant’s home market is China, and thus it might be hard for the company to refuse a request for MoneyGram-based information from Beijing, even if that information was related to its offshore business with no connection to China.

Ominous Sign

This particular deal comes after the US has shot down a string of other purchases under Trump. Most recently the administration vetoed the purchase of Lattice Semiconductor (Nasdaq: LSCC) by a Chinese buyer, but other vetoes also date back from before Trump.

Some are almost certain to read politics into this latest deal, noting that Trump has indicated he’s willing to mix business with politics in its relationship with China. In particular, he wants China to put more pressure on North Korea to end its nuclear program, and thus some might be saying he’s using this kind of veto to show China what might happen if it doesn’t become more assertive on that front.

I’m certainly not a Trump expert, but this kind of mixed approach does appear to reflect his unorthodox style, even though China has also always been a classic mixer of business and politics. All that said, this particular veto looks increasingly like par for the course, meaning we can probably expect to see a sharp slowdown or even a halt to any major M&A of US financial and tech companies by Chinese buyers over the next couple of years.


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