Markets

Moneygram (MGI) to be Adopted by Jack Ma's Ant Financial

Money remittance company, Moneygram International Inc.MGI has entered into a definitive agreement to be acquired by Ant Financial Services, an affiliate company of the Chinese Alibaba Group Holding Limited BABA .

In 2016, the stock significantly outperformed the sector by returning 88.4% compared with a meager gain of 4.4% for the Zacks categorized Financial-Miscellaneous Service industry broader sector.

The partnership with Ant Financial will provide greater scale to Moneygram which has been facing an intensively competitive and rapidly changing payments industry. Also, Moneygram witnessed a decline in total revenue in 2015 and 2014.

While on its own, the company had to continually invest in business to keep pace with the constantly involving industry. Its union with Ant Financial not only ensures a stable partner, it also promises to make its journey easier.

The news has been taken positively by investors of Moneygram, as the stock saw a rise of 8.75% in trading the day the news came out. Moreover, the stock scaled a fresh 52-week high of $13.18 on the news.

The deal will expand Moneygram's presence in China, a region where Ant Financial is a leading player, serving more than 450 million customers. It will also extend the company's presence to 18 million Paytm users in India.

The merger is expected to see light in the second half of the year and has received approval from Moneygram's board of directors. Shareholders of Moneygram will get $13.25 in cash for each share. The amount represents a premium of approximately 20% to Moneygram's volume weighted average share price over the last three-month period. Total consideration for the deal is nearly $880 million.

Post-merger, Moneygram will continue to carry the same name, headquarters as well as management team.

Until the merger, Moneygram was a smaller player in the U.S. remittance industry compared with the leadership position enjoyed by another payer Western Union Co. WU but the deal will change its size and is expected to have negative ramifications for Western Union. We expect Moneygram to have enough final resources to invest in by virtue of Jack Ma's partnership which will place MoneyGram as a stiff competitor to Western Union. Also, while Western Union has an extensive global reach and commands premium pricing in some markets due to its brand name, we expect its pricing to come under pressure if MoneyGram also penetrates the same markets as Western Union.

Moneygram carries a Zacks Rank #3 (Hold). A better-ranked player in the same space is American Express Co. AXP , with a Zacks Rank #2 (Buy). It posted a positive surprise in three out of the last four quarters, with an average beat of 9.51%.

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Moneygram International, Inc. (MGI): Free Stock Analysis Report

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Western Union Company (The) (WU): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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