Traders are betting that Chinese billionaire Jack Ma is about to get drawn into a bidding war as he seeks to build a global payments empire.
Ma’s Ant Financial, the financial services company spun out from Alibaba, struck an $US880 million deal to acquire money transfer company MoneyGram in January.
For Ant, which is controlled by Ma and underpins e-commerce giant Alibaba, the deal is a way to sidestep the painstaking legal and regulatory work it would take to build a global payments business from scratch.
But MoneyGram is one of only a few dominant players in the global money-transfer industry, and it wasn’t long before another bidder emerged. Last week, Kansas-based e-payment services company Euronet made a counter-offer of more than $US1 billion. Now, Reuters is reporting that MoneyGram has opened its books up to Euronet so it can firm up its offer.
Wall Street already seems certain that there’s more to come.
MoneyGram’s shares opened for trading Monday at $US16.29. That’s 7% above Euronet’s offer of $US15.20 and 23% above Ant’s $US13.25 a share bid. In paying that price for MoneyGram shares, investors are betting — in part — that Ant has a lot of good reasons not to let this one go.
Here’s how it works
Ant’s main business is the mobile wallet application Alipay. A combination would enable Alipay’s customers, who are primarily based in China, to transfer money across borders. Right now, Alipay customers can use the app to pay for purchases online or in-person at stores. The app connects to their bank accounts and works similarly to Apple Pay or other e-wallets.
The company has expanded into India and other parts of Asia, but users can’t send money to friends or relatives abroad.
Global expansion has become a priority for the company. In fact, Ant hired a Head of International Operations last year — a former Goldman Sachs banker named Doug Feagin — specifically to spearhead that global expansion.
Growing overseas without the acquisition would require building a network of partnerships with local banks and businesses — and strict adherence to a huge array of regulations, which vary from country to country. The process of taking a cash deposit — via a bodega or drug store — moving it overseas and making it available to another person is fraught with money-laundering and terrorism financing risks.
It’s a business that only makes sense at scale, and it means that only a few key players dominate the industry. MoneyGram and its competitor Western Union are the biggest global players, having worked out agreements with businesses and financial institutions around the world. For Alipay, acquiring MoneyGram — and its partnerships and compliance infrastructure — would be a game changer.
Trump Tower visit
One of Euronet’s arguments for why it’s offer is a better deal is that it won’t have to undergo regulatory scrutiny from the Committee on Foreign Investment in the United States, or CFIUS, like Ant will.
That committee investigates deals with foreign buyers to ensure they don’t pose a risk to US national security; about 16% of deals investigated in 2014, the most recent year with publicly available data, involved Chinese buyers. A 2012 CFIUS investigation led to the US blocking the Chinese company Ralls Corp’s deal to buy wind turbines near a Navy military site in Oregon.
But it is the President who has ultimately has the final say on CFIUS investigations, and Ant’s chief backer — Jack Ma — was part of the early parade of visitors to then President-elect Donald Trump’s home in Trump Tower.
The two met in January and pledged to create $US1 million US jobs together. Trump at the time described Ma as “a great, great entrepreneur, one of the best in the world.”
That, of course, doesn’t mean that Trump won’t block the deal if he deems that the right thing to do, but the budding relationship certainly can’t hurt.
At the moment, the ball is in Euronet’s court. It is expected to take a week to firm up its offer, Reuters reported. But if Wall Street’s read on the situation is right — things won’t end there for Ma.