MoneyGram deal collapse may force a re-think at Jack Ma's Ant Financial

Ant Financial may have to re-tool its global ambitions after stiff U.S. opposition scuppered what would have been its largest overseas acquisition.

The Chinese financial services giant controlled by Alibaba co-founder Jack Ma abandoned a plan to buy MoneyGram International Inc. after failing to win approval for the deal from a key government panel. China’s largest online wealth management and payments service may now have to throttle back plans to expand in the world’s largest financial market as it begins preparations to go public in the next year or so.

The end of the bid comes almost a year after Ma met with then President-elect Donald Trump and talked of creating a million U.S. jobs. Ant Financial’s $1.2 billion deal for Dallas-based MoneyGram would’ve added a network of 350,000 agent locations in more than 200 countries and territories that it says reaches billions of accounts. The U.S. company’s shares plunged as much as 17 percent in extended trading.

But the deal faced intense scrutiny from a government panel that’s become more active in blocking Chinese investments. Ant submitted its proposal to the the Committee on Foreign Investment in the U.S. several times, to no avail. Last spring, two House of Representatives members said the acquisition could allow “malicious actors” to obtain data on U.S. military personnel and their families who use the service. Ant and Moneygram now plan to work together on initiatives in remittance and digital payments, they said in a joint statement. 

“Technology companies understand the situation and are evolving in their approach. They are doing more things organically, they are doing more strategic alliances,” Jeremy Choy, head of M&A for China Renaissance, told Bloomberg Television. “We don’t think this is the start of a trend where people just won’t do things in the U.S. A lot of technology companies are becoming increasingly global, so they have to go to the U.S. But in terms of the approach, it will be less direct than finding a target and buying 100 percent.”

Ant Financial -- formerly part of Ma’s Alibaba Group Holding Ltd. -- is already a behemoth in China, providing services from wealth management and insurance to credit checks and consumer loans. Formally known as Zhejiang Ant Small & Micro Financial Services Group Co., the company was valued at $75 billion by Hong Kong investment group CLSA in 2016 and is expected to go public eventually. Its Alipay platform has built itself into an online giant that controls roughly half of China’s $5.5 trillion mobile-payments market. 

But the company is eager to expand internationally amid aggressive competition in its home market from Tencent Holdings Ltd. and the prospect of increased regulation on internet finance. It’s struck partnerships around the globe, including in India, Thailand, South Korea and France. The company didn’t respond to requests for additional comment.

Chinese takeovers of American companies have prompted warnings from lawmakers about risks to national security with CFIUS able to impose changes on deals to protect national security or recommend that the president block them. In September, Trump blocked the sale of Lattice Semiconductor Corp. to a buyer funded by a Chinese state-owned entity.

But Ant -- which paid MoneyGram a $30 million termination fee -- has disputed assertions that U.S. security would be compromised by the deal, citing its plans to keep the U.S. company’s headquarters, management team and employees in Dallas. The company said MoneyGram’s servers -- and the data stored on them -- would also remain in the U.S.

“The geopolitical environment has changed considerably since we first announced the proposed transaction,” MoneyGram Chief Executive Officer Alex Holmes said in Tuesday’s 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.”