Will Euronet Lure Moneygram (MGI) Away From Alibaba Offer? (revised)

Money remittance company Moneygram International Inc. MGI has received another proposal for acquisition. This time the bidder is Kansas-based Euronet Worldwide EEFT. MoneyGram already accepted the proposal to get itself sold to Ant Financial Services, an affiliate of the Chinese Alibaba Group Holding Limited BABA, in January.

Since the news of Ant Financial’s proposal, shares of Moneygram have increased 22% compared with a gain of 1.8% for the Zacks categorized Finance-Miscellaneous Services industry. The Euronet news led a surge of 25% in the stock.  

Euronet’s proposal of approximately $940 million is more attractive than Ant Financial’s offer of approximately $800 million. The bid represents a 15% premium over MoneyGram's existing $13.25 per share agreement with Ant Financial.

Moneygram has been eyed by Euronet since long. In fact, Euronet had bid for MoneyGram in way back in 2007. The move by Ant Financial prompted Euronet to give a last try to buy MoneyGram, before it becomes part of another company.

Euronet or Ant Financial

The partnership with either of the companies will flex the muscles of Moneygram which operates in an intensively competitive and fast-changing payments industry. Also, Moneygram witnessed a decline in total revenue in 2015 and 2014.

As a consequence, its shares underperformed during both the years, losing 31.02% in 2015 compared with a decline of 18.29% for the Zacks categorized Financial-Miscellaneous Service industry and 50.86% in 2014 compared with a loss of 18.26% for the broader sector.  While on its own, the company has to continually invest in business to keep pace with the constantly evolving industry. Its union with a stable partner will make its journey easier.

The deal with Ant Financial will expand Moneygram’s presence in China, a region where the former is a leading player, serving more than 450 million customers. It will also extend the company’s presence to 18 million Paytm users in India.

We somehow believe that the Euronet deal has higher chances to getting sealed. First, the Euronet offer price is higher than Ant Financial’s. Second, the Euronet deal will see no hang ups from the regulatory body Committee On Foreign Investment in the United States (CFIUS) or no closing condition related to securing change of control consents covering money transmitter licenses in the jurisdictions in which MoneyGram operates.

On the other hand, the Ant Financial deal will demand significant scrutiny from CFIUS given the significant Chinese investment in a U.S. financial services firm. Donald Trump’s “America First” platform has prompted an increasing number of U.S. politicians to call for tougher measures to keep Chinese buyers away from U.S businesses.

Moreover, the business of Euronet and Moneygram complement each other. While Euronet’s main focus is smaller, independent agents, MoneyGram partners with several large chains.  Both the companies hold top ranks in the money transfer market next only to the industry leader Western Union Co. WU. Together, they will pose stiff competition to Western Union which commands a premium pricing in many corridors due to its established and globally recognized brand name.  

Moreover, the money remittance market remains significantly underpenetrated. The combined company will be able to garner a much bigger pie of the booming industry. Also, together they will be able to significantly expand their digital platform.

What Next?

Moneygram is subject to the terms of the definitive merger agreement with Ant Financial. Its board has not changed its recommendation in support of the merger agreement with Ant Financial, but the proposal with Euronet is under review and we will not be surprised if Moneygram changes its choice of partner. We also expect to see a counter offer from Ant Financial to water down Euronet’s proposal.

Moneygram carries a  Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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(We have revised this srticle to correct an error. The original version, published earlier today, March 15, 2017, should no longer be relied upon.)

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