The US government's rejection of Ant Financial US$1.2 billion acquisition of money transfer firm Moneygram International (MGI - Get Report) poses a major setback for the Chinese company's global ambitions, highlighting a political climate that is not welcoming to Chinese firms.
Ant Financial and Moneygram on Tuesday said in a joint statement that the deal failed to obtain approval from the Committee on Foreign Investment in the United States (CFIUS), a US government panel that assesses the national security implications of foreign investments in American companies.
The failure of the deal represents a stumbling block in Ant Financial's quest to expand its financial technology services globally as it competes with rival Chinese internet company Tencent (TCEHY) in the international fintech market. The CFIUS decision also reflects the changing environment in Washington where lawmakers are urging tighter scrutiny of Chinese acquisitions of US assets amid renewed anti-China rhetoric from US President Donald Trump.
The deal was seen as an important one for Ant Financial because Nasdaq-listed Moneygram, based in Dallas, Texas, is the second-largest money transfer provider globally with more than 350,000 agent locations in over 200 countries. Acquiring Moneygram would have given Ant Financial the international reach it required to kick start its global ambitions, including in areas such as South America, according to IDC research manager Michael Yeo.
"The Moneygram deal falling through means that Ant Financial will have to go back to making single partnerships if it wants to have organic growth of their services in the West, when they could have acquired a global network in one fell swoop," Yeo said.
He acknowledged that the current political climate in the US will make it "quite difficult" for Chinese companies looking to do a merger or acquisition to expand their business.
Neil Wang, the Greater China president of consultancy firm Frost & Sullivan, said that Chinese investors, especially technology or internet companies, tend to face greater scrutiny.
"The collapse of this deal is the latest example of CFIUS blocking M&A proposals concerning cybersecurity and personal data but not immediately and traditionally associated with national security," Wang said.
Reuters reported on Wednesday that Chinese foreign ministry spokesman Geng Shuang said China hopes the US can create a level playing field and a predictable environment for Chinese enterprises.
Ant Financial first offered US$880 million to acquire Moneygram in January 2017, later upping the offer to US$1.2 billion to fend off a competing bid by rival payments company Euronet Worldwide. Ant Financial's head of international strategy, Douglas Feagin, said in an interview with Reuters in March that Moneygram was "very attractive" to Ant due to its global remittance reach and its omnichannel approach.
However, others believe that the failure of the deal will not have a big impact on Ant's international expansion plans as Asia is the main focus for the Chinese firm, which serves as the financial arm of e-commerce company Alibaba Group (BABA - Get Report) .
"Without the merger, Ant Financial's US expansion will slow, but it will not have a significant impact on their global expansion plans as they are focusing on expanding in Asia, which is a much larger market when it comes to something like online payments and fintech," said Kitty Fok, managing director of IDC China.
Both Ant Financial and Tencent, which operate Alipay and WeChat Pay respectively, have already expanded their payments services outside mainland China. Thousands of merchants around the world now accept Alipay and WeChat Pay as a way to settle payments from Chinese tourists, and both companies' mobile payment wallet service is also available in markets like Hong Kong.
Ant Financial has also invested large amounts of money in acquiring stakes in local payment operators in the Asian market. In India, Alibaba invested US$177 million to increase its stake in local fintech firm Paytm from 40 to 62 per cent, and also acquired a 20 per cent stake in Thailand's payment operator Ascend Money.
Wang Xiaofeng, senior analyst at Forrester Research, said the failed Ant-Moneygram deal is not a game-changer and will not be a major hindrance to the company's global plans.
"Ant Financial has its finger in many pies, including banking, insurance and payments," said Wang. "They want to extend to different product lines and not just money transfers."
Alibaba owns the South China Morning Post.
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