Why did the US government block Ant Financial from acquiring Moneygram?
Why did the US government block Ant Financial from acquiring Moneygram?
Speculating on CFIUS’ reasons
Yahoo Finance: MoneyGram plunges after US denies a proposed merger with Alibaba affiliate
“The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago,” MoneyGram CEO Alex Holmes said in a statement. “Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that [the Committee on Foreign Investment in the United States] will not approve this merger.”
Alibaba and MoneyGram will instead form a "new strategic business cooperation" to expand their remittance and digital payments services internationally. “Establishing this new strategic cooperation with MoneyGram will add a partner with global remittance capabilities to our ecosystem,” Doug Feagin, president of Ant Financial International, said in a statement.
It’s a major blow for the Chinese e-commerce giant, which has global ambitions but faces a U.S. government that has taken a hard line on trade with China. For example, President Donald Trump is expected to release harsher penalties this month on companies that depend on trade with China, according to The Washington Post. Ant Financial is best known for Alipay, a dominant online payments service, similar to PayPal, that had been part of Alibaba but separated after when Alibaba went public in 2014.
Imagining myself as a fly on the wall at the CFIUS meetings, I suspect the reasons are multi-faceted:
Political: China is viewed as a direct threat to the U.S. particularly from an economic perspective and there are zero political points to be gained by allowing a Chinese player to make even the most trivial toehold in the consumer financial services sector.
National Security: Money transmittal is viewed as a national security risk, as it involves private personal information and can be used for nefarious reasons (e.g. money laundering). Even though the stated reason for the acquisition was to focus on money transmittal outside the United States, Moneygram has significant domestic money transfer operations as well which would be under the control of a Chinese company if the acquisition were to go through.
Competitive: Through Ant Financial (Alipay) and Tencent (Wechat Payments), China has leapfrogged traditional payment systems like credit cards and its derivatives (e.g. Paypal, Venmo). The technology behind Alipay is not especially difficult, and the only reason it hasn’t happened yet here is because Visa and Mastercard aren’t in any rush to disrupt their highly profitable oligopoly. The real value in a payments system is derived from network effects based on mass usage and it doesn’t make a lot of sense to just hand that over to an outsider especially one with a first mover’s advantage.
Corporate Lobbying: Visa, Mastercard and other American consumer finance businesses would be against Ant Financial or Tencent gaining even the most minor toehold in consumer payments in the United States and I am quite sure this message has been passed along to the right people.
Jobs: Moneygram probably loses a few high-paying onshore corporate jobs that are made redundant as a result of this deal.
Tit for Tat: Blocking the Moneygram acquisition may also be viewed as a fitting response to the 2011 divestment of Alipay out of Alibaba (which was majority-owned by Yahoo and Softbank) to create Ant Financial in the first place.
With all of the things working against the deal, you then have to weigh them against the benefits are of letting it go through. What is the upside here? Perhaps a hundred million dollars for Moneygram shareholders based on the premium that Ant would have paid over the next-highest bidder (Euronext)?
I can totally see why CFIUS decided to say no to this deal.
This was originally published on Quora in January 2018.