April 18, 2017

Cry uncle to Ant

by Breakingviews

Jack Ma may be giving a rival bidder a smarter way to win an M&A fight. The Alibaba chief executive’s payments division, Ant Financial, has sweetened its offer to buy MoneyGram to $1.2 billion. That’s 20 percent higher than what interloper Euronet proffered. Cost cuts alone cannot justify it making a new counteroffer. Given Anbang’s struggles to close its deal with Fidelity & Guaranty Life, Euronet is better off waiting to see if regulators clear the way.

Ant’s new terms represent a 64 percent premium to MoneyGram’s share price before talks started and value the company at 18 times this year’s estimated earnings. That puts it in line with Euronet, which has consistently grown its top and bottom lines over the past few years. MoneyGram, by contrast, had been shrinking before reporting growth last year, suggesting a discount is warranted.MoneyGram should now be beyond the reach of Euronet, led by founder Michael Brown. His surprise $1 billion offer last month envisioned hacking out $60 million of expenses. Once taxed and capitalized, these would cover the premium at up to a $1.1 billion offer.Euronet could, perhaps, find more savings. Or it might try to quantify any extra revenue he anticipates from combining with MoneyGram. Shareholders tend to be pretty skeptical, and rightly so, that such tactics can be mere window dressing covering up potential value destruction.

Withdrawing makes more financial sense. That would leave Ant, which is planning an initial public offering, to justify MoneyGram to its own potential new investors.

Deal success is not assured either. Ant may have received antitrust approval, but has two other significant regulatory hurdles. First, it must clear the Committee on Foreign Investment in the United States, the opaque group that reviews takeovers for national-security concerns. Ant also needs licenses or change-of-control approval from all U.S. states in which MoneyGram operates as well as from national regulators around the world.

That’s what caused Anbang’s Fidelity deal to falter, Reuters reported on Sunday. Euronet itself emphasized how its own offer provides “a clear and significantly more certain path” to closing because of the consents Ant must obtain. By that logic, rather than overpaying, Euronet should try to win by disqualification.

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