U.S. national security panel's roadblocks to deal come as Washington toughens stance toward Chinese buyers
Ant Financial Services Group is calling off its acquisition of U.S.-based Money-Gram International Inc, after failing to gain approval from Washington's national security panel, which is increasingly obstructive toward Chinese investment in U.S. firms.
The demise of the deal is the latest example of political concerns trumping business factors at a time when the White House has toughened its stance on the sale of entities to Chinese buyers, experts said.
The two companies announced on Wednesday the termination of their merger agreement following the inability to obtain the required approval from the Committee on Foreign Investment in the United States, and instead plan to work together on strategic initiatives in the remittance and digital-payment markets.
In a written statement, MoneyGram Chief Executive Officer Alex Holmes attributed the failure to a changing "political environment", saying that the CFIU.S. will not approve this merger "despite our best efforts to work in cooperation with the U.S. government".
China hopes the United States can create a level playing field and a stable environment for Chinese enterprises, Foreign Ministry spokesman Geng Shuang said on Wednesday in response to the rejection of the deal.
The proposed transaction first surfaced last January, when the Chinese payment giant agreed to pay $880 million for the deal. But it upped its offer to $1.2 billion, or $18 per share in cash, after a U.S. company offered a counterbid in April.
Doug Feagin, president of Ant Financial International, said cooperation on global remittance capabilities will still make its services more accessible to under-banked and underserved communities globally, even if a direct ownership relationship is currently absent.
But the decision still deals a heavy blow to Ant Financial, backed by Alibaba Group Holding Ltd's founder Jack Ma, as it seeks to expand internationally to shed reliance on the home market and compete with Tencent Holdings Ltd's rival payment system.
"It's more of a political issue than a legal one," said Ling Xiao, partner of Hui Ye Law Firm. "The future really depends on where the foreign policy of U.S. President Donald Trump is heading."
Ling said that financial services would be one sector that is vulnerable to getting clearance from the committee, given its backbone status in the U.S. economy and the integrity of personal data.
The collapse of the high-profile deal is the latest in a string of Chinese acquisitions of U.S. companies that were torpedoed by the CFIU.S.. Following U.S. government opposition, aluminum manufacturer Zhongwang U.S.A LLC dropped its bid to buy U.S. metals producer Aleris Corp in November.
Chinese outbound investment is likely to face more headwinds, as countries including the U.S. tighten their rules and increase their scrutiny of foreign investment, said Han Qi, a researcher at Shanghai Chamrich Equity Investment Fund Management Co Ltd.
For example, newly introduced screening mechanisms have given Germany more time to probe takeover bids and extend the range of deals eligible for examination by the authorities, he said. "But the judgment of whether a deal breaches national security is highly subjective," said Han. "Even additional measures and protocols from companies to address concerns could fail to reassure the inspection agencies," he said.