On January 2, 2018, MoneyGram International Inc. and Ant Financial Services Group announced that they had terminated their Amended Merger Agreement after they were unable to obtain approval of the transaction from the Committee on Foreign Investment in the United States (“CFIUS”).
MoneyGram provides money transfer services around the world, and Ant Financial is an affiliate of Alibaba, a Chinese technology conglomerate controlled by Jack Ma. In January 2017, the parties announced that they had entered into a merger agreement by which Ant Financial would acquire all of the outstanding shares of MoneyGram. In April, the parties announced that Ant Financial had increased its offer price to $18.00 per share in cash, resulting in a transaction valued at approximately $1.2 billion. Mr. Holmes cited extensive efforts to address CFIUS concerns, and stated that, despite the termination of the merger agreement, the parties will work together on new global strategic initiatives.
For several years, Chinese investors have accounted for both the greatest number and the greatest percentage of covered transactions notified to CFIUS. While CFIUS does not comment publicly on transactions that it reviews, this case is the latest in a string of transactions involving Chinese investors that have been unable to secure CFIUS approval. This was recognized by Alex Holmes, Chief Executive Officer of MoneyGram, who notes, in addressing the termination this week, that "[t]he geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago.”
In this connection, there have been calls for increased scrutiny of such transactions. For instance, Reps. Robert Pittenger (R., N.C.) and Chris Smith (R., N.J.) published a commentary in the Wall Street Journal last year demanding careful scrutiny of the proposed MoneyGram/Ant Financial transaction citing a strategic effort by the Chinese government to infiltrate the American financial system. The commentary stated that the Chinese government held a 15 percent stake in Ant Financial and speculated that if the transaction was completed, data held by MoneyGram could be used by the Chinese government to target activists, journalists, and others. Rep. Pittenger is the lead sponsor of the House version of the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA), which would, among other things, expand the scope of CFIUS jurisdiction. Douglas Feagin, President of Ant Financial International, publicly responded to that commentary by explaining that Ant Financial is a private sector company and that the state-owned or -affiliated funds that own minority stakes in Ant Financial are not controlling, do not participate in company, and have no board representation or any special rights. According to Reuters, the decision to walk away from the transaction was made after CFIUS rejected proposals by MoneyGram and Ant Financial to protect sensitive financial data on U.S. citizens.
Investments with ties to China or involving access to sensitive personal data will inevitably face increased challenges in obtaining approval by the U.S. government. Parties contemplating transactions involving investment from outside the United States, particularly investments involving China, should consult with counsel early in the transaction process. Knowledgeable counsel can assist in evaluating the proposed transaction in light of current CFIUS actions and may be able to minimize needless expenditures of time and resources on transactions that are unlikely to ever receive CFIUS approval. Counsel can also assist parties in structuring transactions and presenting proposed transactions to CFIUS in ways that maximize the likelihood of CFIUS approval.