MoneyGram and Ant Financial Services Group have mutually agreed to terminate their planned merger due to the inability of the companies to obtain the required approval for the transaction from the Committee on Foreign Investment in the United States (CFIUS). The rejection they say, came despite “extensive efforts to address the Committee's concerns.”
MoneyGram is a global provider of money transfer services. Ant Financial Services Group, an affiliate of China-based Alibaba, “is focused on serving small and micro enterprises, as well as individuals. Ant Financial is dedicated to bringing the world more equal opportunities through building a technology-driven open ecosystem and working with other financial institutions to support the future financial needs of society. Businesses operated by Ant Financial include Alipay, Ant Fortune, Zhima Credit, and MYbank.
“The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago,” Alex Holmes, CEO of MoneyGram said in a 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."
On April 16, 2017, MoneyGram and Ant Financial entered into an amended merger agreement under which Ant Financial would acquire all the outstanding shares of MoneyGram for $18.00 per share in cash. In accordance with the Merger Agreement, simultaneous with termination of the agreement, Ant Financial paid MoneyGram a $30 million termination fee.
Under their new strategic business cooperation, MoneyGram and Ant Financial will explore and develop initiatives to bring together their capabilities in remittance and digital payments to provide their respective customers with user-friendly, rapid-response and low-cost money transfer services into China, India and the Philippines, among other Asian markets, as well as in the U.S. and other key regions around the world.
The deal is another casualty of efforts by the Trump Administration to curb Chinese investment in the U.S.
In September, the White House, through CFIUS, blocked the sale of Lattice Semiconductor to a consortium of Chinese investment funds that had agreed to buy it for $1.3 billion. Among the thwarted buyers was China Venture Capital Fund, a Chinese corporation owned by Chinese state-owned entities that manages industrial investments and venture capital.
Trump issued the executive order, rejecting an appeal by Lattice Semiconductor, on Sept. 13.
“The national security risk posed by the transaction relates to, among other things, the potential transfer of intellectual property to the foreign acquirer, the Chinese government's role in supporting this transaction, the importance of semiconductor supply chain integrity to the U.S. government, and the use of Lattice products by the U.S. government,” the executive order says.
Under the Defense Production Act, the President is authorized to suspend or prohibit certain acquisitions that result in foreign control of a U.S. business if he concludes, among other things, that there is credible evidence that the foreign interest exercising control might take action that threatens to impair national security.
The role of CFIUS is to review certain types of foreign transactions to determine if there is: a threat to impair U.S. national security; a foreign investor present which is controlled by a foreign government, such as a state-owned enterprise; and something that can affect homeland security or result in control of any critical infrastructure that might impair national security.
Increasingly, in a multinational business climate, concerns arise regarding national security and the intellectual property held by domestic companies that do business abroad. That has sparked legislative efforts to expand the jurisdiction of CFIUS.
In November, U.S. Senators John Cornyn (R-Texas) and Dianne Feinstein (D-Calif.), along with the Chairman of the Senate Select Committee on Intelligence, Richard Burr (R-N.C.), introduced the Foreign Investment Risk Review Modernization Act, intended to modernize and strengthen the process by which the Committee on Foreign Investment in the United States reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.
“By exploiting gaps in the existing CFIUS review process, potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in, U.S. companies,” Cornyn said. “This undermines our national security and highlights the imperative of modernizing the CFIUS review process to address 21st century threats. This bill takes a measured approach by providing long overdue reforms to better protect our country, while also working to ensure that beneficial foreign investment is not chilled.”
“This bill focuses on providing CFIUS with updated tools to address present and future security needs,” Sen. Feinstein said. “We have been working on this bill for the last eight months, and we hope to build on the progress we’ve already made to update CFIUS and address national security threats.”
Specifically, FIRRMA would:
Expand the CFIUS jurisdiction to include certain joint ventures, minority position investments, and real estate transactions near military bases or other sensitive national security facilities.
Update the Committee’s definition of “critical technologies” to include emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats, such as China.
Allow foreign investors to submit “light filings” to CFIUS for certain types of transactions.
Add new national security factors for CFIUS to consider in its analyses.
The bill would also authorize CFIUS to exempt certain otherwise covered transactions if all foreign investors are from a country that meets certain criteria, such as being a U.S. treaty ally and having a mutual investment security arrangement.