Ant Financial’s acquisition of MoneyGram International does not pass CFIUS scrutiny

Of late, the U.S. government has focused on the cyber security, data integrity and privacy related angles to a deal before it gives its blessings.

The U.S. government has rejected the acquisition bid by Ant Financial, a unit of Alibaba Group Holding Ltd, of U.S. money transfer firm MoneyGram International Inc citing national security concerns.

According to sources familiar with the confidential discussions, the Committee on Foreign Investment in the United States (CFIUS) rejected the deal on data safety grounds, saying data can be used to identify U.S. citizens.

“Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger,” said Alex Holmes, MoneyGram’s CEO in a statement.

As per sources, both companies had gone through the CFIUS review process, which lasts up to 75 days, three times in order to address concerns. Additional protocols and security measures both companies suggested did not reassure CFIUS, said sources.

When asked to comment on the matter, the U.S. Treasury said it is prohibited by law from disclosing information filed with CFIUS and thus declined comment on this deal.

The U.S. government has raised standards and has toughened its vis-a-vis the sale of U.S. companies to Chinese entities and at the same time has applied pressure on China to do more to contain the nuclear ambition of its ally, North Korea as well as be more accommodative on foreign exchange issues and trade.

Other Chinese deals that have failed to clear the CFIUS hurdle is the acquisition of Lattice Semiconductor Corp, a U.S. chipmaker by Canyon Bridge Capital Partners LLC, a China-backed buyout fund for $1.3 billion; the acquisition of Genworth Financial Inc, a U.S. life insurer by China Oceanwide Holdings Group Co Ltd for $2.7 billion and the acquisition of AppLovin, a U.S. mobile marketing firm, by Orient Hontai Capital, a Chinese buyout firm for $1.4 billion.

The development underscores CFIUS’ growing focus on areas of data integrity and cyber security that are tied to national security.

Financial services deals that are currently awaiting CFIUS approval include HNA Group Co’s acquisition of SkyBridge Capital LLC, a hedge fund-of-funds.

As per a source MoneyGram and Ant Financial are now likely to explore ways, including through commercial agreements, to develop initiatives to collaborate in remittance of digital payments in regions such as India, China, Philippines and other Asian markets, as well as that of the United States.

Significantly, an arrangement that both firms chose to decide upon that does not involve a transaction will not require CFIUS review.

“What is more likely to happen at this point is that MoneyGram will sell to another company, and one company that has shown interest in the past is Euronet,” said Gil Luria, an equity analyst at D.A. Davidson & Co.

“Euronet continues to believe there is compelling commercial logic to a combination between Euronet and MoneyGram. However, significant developments have been disclosed by MoneyGram since Euronet’s offer, and Euronet has not conducted any evaluation of the business in that time. While we continue to view a transaction with MoneyGram as logical, there is no guarantee any offer will be made or any transaction will ultimately occur,” said Euronet in a statement.

Ant Financial stated it has paid $30 million to MoneyGram as termination fee following the deal’s collapse.

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