By Joyce Yu
Philadelphia, PA–Chinese companies start off 2018 with not-so-good news on their overseas merger and acquisition proposals. The plan of Ant Financial, an affiliate of Jack Ma’s tech company Alibaba, to acquire U.S. money transfer company MoneyGram International was called off on Tuesday after Committee on Foreign Investment in the United States (CFIUS) rejected it over national security concerns.
MoneyGram shares fell 8.5% in after-market trading after CFIUS’ decision was made known. First announced in January 2017, the deal costs Ant Financial$30 million to be terminated.
“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 CFIUS will not approve this merger,” Holmes said.
The companies decided to terminate their deal after CFIUS rejected their proposals to mitigate concerns over the safety of data that can be used to identify U.S. citizens, sources familiar with the confidential discussions told the Reuters.
“CFIUS reviews focus on national security concerns and Treasury takes the role as Chair of CFIUS very seriously, to ensure that CFIUS identifies and addresses any national security concerns posed by such foreign investment,” a spokesperson said in an emailed statement.
The proposed acquisition of MoneyGram, which has over 650 million users worldwide, competes with Western Union for cross-border money transfers to countries like Mexico, would have been the first major move to expand its footprint overseas of Ant Financial who originally agreed to pay $880 million, but upped its offer to $1.2 billion in April.
Congressmen Robert Pittenger and Chris Smith voiced major concerns for allowing the Chinese government to gain significant access to, and information on, financial markets and specific international consumer money flows should the transaction be approved, according to a CNN report.
The Chinese government holds a 15% stake in Ant Financial, according to the congressmen. However, a spokesperson for Ant Financial said the company is “neither owned nor controlled by the Chinese government.”
“Similar to U.S. government pension funds investing in American companies, a small number of Chinese government investment funds have minority stakes in Ant Financial,” the company said. “These are all passive, non-controlling stakes, and none of these investors participate in management or have board representation.”
Chinese groups face roadblocks to invest in sensitive US technology or strike megadeals in 2017 as a result of a new capital-controls regime in China and increased scrutiny from the US government and European states. But Chinese companies still maintained an aggressive rate of overseas acquisitions, committing to $140.5bn of cross-border deals, making it the country’s second biggest year, albeit down about 34% from 2016, according to a Financial Times report.
