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Wall Street Journal / Biz - Money

U.S. Bars Merger of MoneyGram, China’s Ant Financial

An American national-security panel refused to approve a deal for China’s Ant Financial Services Group, an affiliate of Jack Ma’s Alibaba, to buy MoneyGram, in the latest sign the U.S. is tightening scrutiny of investment from China at a time of greater tensions between the two countries.


By

Peter Rudegeair and

Kate O’Keeffe

An American national-security panel refused to approve a deal for Chinese billionaire Jack Ma’s Ant Financial Services Group to buy MoneyGram International Inc., the companies said Tuesday, in the latest sign the U.S. is tightening scrutiny of investment from China at a time of greater tensions between the two countries.

The companies in a joint statement said they had been unable to secure approval from the Committee on Foreign Investment in the U.S., or CFIUS, “despite extensive efforts to address the Committee’s concerns.”

“The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago,” MoneyGram Chief Executive Alex Holmes said in a news release. MoneyGram shares fell 6.5% in aftermarket trading.

Ant Financial is controlled by Mr. Ma, who is the founder of e-commerce giant Alibaba Group Holding Ltd. Ant Financial operates Alipay, which acts as the payments service of Alibaba. MoneyGram, based in Dallas, specializes in cross-border transfers of funds.

The failed takeover of MoneyGram is the latest in a string of high-profile Chinese deals that have run into trouble with CFIUS, a multiagency body that can advise the president to block foreign deals on national-security grounds, as momentum builds in Washington to more closely scrutinize Chinese investment.

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In September, President Donald Trump blocked an attempt by Chinese government-backed Canyon Bridge Capital Partners to buy Portland, Ore.-based Lattice Semiconductor Corp. after CFIUS recommended against the deal.

Chinese conglomerate HNA Group Co. has been trying for some time to get approval from the panel to buy a controlling stake in SkyBridge Capital, the investment firm owned by former White House adviser Anthony Scaramucci. A $2.7 billion deal for China Oceanwide Holdings Group Co. to buy Richmond, Va.-based insurer Genworth Financial Inc. is also being held up by the committee.

The outlook for Chinese investment could get tougher yet if bipartisan bills introduced in November by Senate Majority Whip John Cornyn (R., Texas) and Rep. Robert Pittenger (R., N.C.) pass. The proposed legislation would further ratchet up scrutiny of foreign investment, taking aim in particular at Chinese technology deals.

Ant Financial originally signed a deal to buy MoneyGram for $880 million in January 2017. It later increased its bid to about $1.2 billion after Euronet Worldwide Inc. submitted an unsolicited competing offer of about $955 million.

At the time, the deal signaled Ant Financial’s ambitions to gain a foothold in financial services in North America. Although it operates Alipay and owned a stake in One97 Communications, the dominant digital-payments services in China and India, respectively, Ant Financial’s presence in the U.S. was relatively modest. In contrast, MoneyGram had 1,226 employees in the U.S. at the end of 2016.

Douglas Feagin, president of Ant Financial International, told The Wall Street Journal at the time of its original bid that the company was “very happy to go through the [CFIUS] process” and that it has a “good dialogue” with U.S. regulators. On Tuesday, Mr. Feagin said in a statement that the company “remain[s] excited and encouraged about Ant Financial’s future prospects around the world.”

The failure of the Ant deal to gain CFIUS approval comes despite a major lobbying effort in Washington. Within a week of announcing the deal, lobbyists representing Alibaba met with the office of Rep. Pittenger. They cited Alibaba’s role in helping North Carolina-based companies such as Hanesbrands Inc. sell their goods to Chinese customers, according to documents reviewed by the Journal.

Lobbyists also touted a meeting Mr. Ma had with Mr. Trump shortly before the Ant Financial deal was announced in which the Chinese billionaire pledged to create U.S. jobs, according to a person familiar with the matter.

The lobbyists returned twice more, finally meeting Mr. Pittenger personally, the person familiar with the meetings said. Alibaba earlier declined to comment.

After the lobbyists’ departure, Mr. Pittenger fired off a Wall Street Journal op-ed, co-authored by Rep. Chris Smith, a New Jersey Republican and co-chair of the Congressional-Executive Commission on China, blasting the deal.

“America’s economic strength is at risk from strategic, well-coordinated and state-sponsored Chinese investments in American financial institutions,” the lawmakers wrote in the piece published Feb. 21.

Ant Financial’s Mr. Feagin rebutted the lawmakers’ criticisms in his own letter to the Journal, which ran a week later. He added that “while a handful of Chinese state-owned or -affiliated funds own non-controlling minority stakes, they do not participate in company management. Nor do they have board representation or any special rights.”

MoneyGram and Ant Financial said they now would focus on working together on strategic initiatives in the remittance and digital-payments markets. They also said Ant Financial paid MoneyGram a $30 million fee as a result of the merger being terminated.

—Maria Armental and Julie Steinberg contributed to this article.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Kate OKeeffe at kathryn.okeeffe@wsj.com

Corrections & Amplifications
The companies in April announced an amended deal in which Ant Financial would buy MoneyGram for $18 a share in cash, or about $1.2 billion. An earlier version of the story referred to the deal target as MonetGram.

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