Ant Financial, an affiliate of Chinese e-commerce group Alibaba, has abandoned a merger with MoneyGram after it failed to allay concerns by the US government that the deal posed no risk to America's national security.
Ant Financial and MoneyGram said on Tuesday that they had failed to get approval for the $1.2 billion (€997 million) deal from the Committee on Foreign Investment in the United States (CFIUS), an arm of the Treasury Department that vets inbound acquisitions for security implications.
MoneyGram chief executive Alex Holmes attributed the decision to the "geopolitical environment" which had "changed considerably" since the pair first announced the proposed transaction nearly a year ago.
"Despite our best efforts to work cooperatively with the US government, it has now become clear that CFIUS will not approve this merger," he said.
Ant Financial, a spin-off from the Alibaba e-commerce group, has more than half of China's fast-growing $5.5 trillion mobile payments market. Launched in 2004 as Alipay it currently has 520 million users.
The decision by the Committee on Foreign Investment (CFIUS) comes as a blow to Alibaba boss Jack Ma's push into the world's biggest financial market.
Ant Financial announced its bid to buy MoneyGram almost a year ago, saying the merger would jump-start its global growth strategy. The Hangzhou-based company then beat a competing bid from US money-transfer rival Euronet by sweetening its offer from $880 million to $1.2 billion.
The company had to submit the proposed merger to CFIUS several times, but failed to allay concerns about the security of US customers' data.
However, Euronet argued the takeover shouldn't be cleared because of the proximity to US military bases of many MoneyGram vendors. Euronet's chief executive Mike Brown said it was dangerous to allow a company whose investors include Chinese state-backed companies access to the data of military officials.
Euronet has now issued a statement, saying it still believed there was "compelling commercial logic to a combination between Euronet and MoneyGram," but it made no new offer.
Cooperation amid confrontation
After the deal collapsed, Ant Financial president Doug Feagin said that the two companies would seek to enter into a "strategic cooperation."
"While Ant Financial won't have a direct ownership relationship with MoneyGram, we look forward to working closely with the MoneyGram team to make our platform even more accessible — particularly to unbanked and underserved communities globally," he said in a statement.
Now that the takeover bid has been shelved, Ant has paid MoneyGram a break fee of $30 million, in accordance with the bid terms.
The foiled takeover is only the latest in a series of US government decisions to prevent Chinese purchases of US firms.
In September, the Trump administration blocked the sale of Oregon-based Lattice Semiconductor to private equity firm Canyon Bridge, its Chinese partner Yitai Capital, and Yitai's parent the China Venture Capital Fund Corp, over national security concerns.
In December, New-York-based investment firm Cowen was forced to scupper a $275 million investment from CEFC China Energy, blaming delays and "uncertainty" in securing CFIUS approval.
Moreover, CFIUS has also thwarted takeovers of US chip makers Micron Technology and Sandisk by state-owned Tsinghua Unigroup. And the $2.7 billion deal between China's Oceanwide Holding and US insurer Genworth Financial has been in balance since October 2016.
uhe/nz (Reuters, AFP)