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US blocks MoneyGram sale to China's Ant Financial

A US government panel rejected Ant Financial's acquisition of MoneyGram International Inc over national security concerns, the companies said on Tuesday, the most high-profile Chinese deal to be torpedoed under the administration of US President Donald Trump.

The $1.2 billion deal's collapse represents a blow for Jack Ma, the executive chairman of Chinese internet conglomerate Alibaba Group Holding Ltd, who owns Ant Financial together with Alibaba executives.

Ma was looking to expand Ant Financial's footprint amid fierce domestic competition from Chinese rival Tencent Holdings Ltd's WeChat payment platform. The deal would have accelerated that goal, connecting MoneyGram's billions of bank and mobile accounts with Ant Financial's customers.

Ant Financial is already a behemoth in China, providing services from wealth management and insurance to credit checks and consumer loans. The company has struck partnerships around the globe, including Paytm in India and Ascend Money in Thailand.

Ma, a Chinese citizen who appears frequently with leaders from the highest echelons of the Communist Party, had promised Trump in a meeting a year ago that he would create 1 million US jobs.

MoneyGram shares were down 8.5 percent at $12.06 in after-market trading.

The companies decided to terminate their deal after the Committee on Foreign Investment in the United States (CFIUS) rejected their proposals to mitigate concerns over the safety of data that can be used to identify US citizens, according to sources familiar with the confidential discussions.

A standard CFIUS review lasts up to 75 days, and the companies had gone through the process three times in order to address concerns. Additional security measures and protocols that the companies suggested failed to reassure CFIUS, the sources said.

"Despite our best efforts to work cooperatively with the US government, it has now become clear that CFIUS will not approve this merger," MoneyGram Chief Executive Alex Holmes said in a statement.

"The geopolitical environment has changed considerably since we first announced the proposed transaction," Holmes said. "We are disappointed in the termination of this compelling transaction, which would have created significant value for our stakeholders."

Based in Hangzhou, China, Ant Financial faced intense scrutiny for its proposed takeover of MoneyGram. It had submitted its proposal to the CFIUS panel several times, to no avail. Last spring, two US House of Representatives members said the acquisition would give China access to the financial infrastructure of the US. The takeover would potentially allow "malicious actors" to obtain data on US military personnel and their families who use the service, the lawmakers said.

"US Treasury is prohibited by statute from publicly disclosing information filed with CFIUS. CFIUS reviews focus on national security concerns and Treasury takes the role as chair of CFIUS very seriously, to ensure that CFIUS identifies and addresses any national security concerns posed by such foreign investment," a US Treasury spokesman said.

The US government has toughened its stance on the sale of companies to Chinese entities, at a time when President Trump is trying to put pressure on China to help tackle North Korea's nuclear ambitions and be more accommodative on trade and foreign exchange issues.

"The deeper we get into this administration, the clearer it appears that skepticism about Chinese deals has sharply increased," said John Reynolds, a partner at Davis Polk in Washington.

CFIUS only reviews mergers and acquisitions, so any arrangements reached by Ant Financial and MoneyGram that do not involve a transaction would not be subject to its review.

"What is more likely to happen at this point is that MoneyGram will sell to another company, and one company that has shown interest in the past is Euronet," said Gil Luria, an equity analyst at D.A. Davidson & Co.

A Euronet spokesman did not immediately respond to a question about whether Euronet would return with a new offer for MoneyGram.

The MoneyGram deal is the latest in a string of Chinese acquisitions of US companies that have failed to clear CFIUS. They include China-backed buyout fund Canyon Bridge Capital Partners LLC's $1.3 billion acquisition of US chip maker Lattice Semiconductor Corp, China Oceanwide Holdings Group Co Ltd's $2.7 billion acquisition of US life insurer Genworth Financial Inc and Chinese buyout firm Orient Hontai Capital's $1.4 billion acquisition of US mobile marketing firm AppLovin.

Besides the MoneyGram deal, other US financial services deals by Chinese firms are waiting for approval from CFIUS, including HNA Group Co's acquisition of hedge fund-of-funds firm SkyBridge Capital LLC from Anthony Scaramucci, the Trump administration's former communications director.

Skybridge and HNA did not immediately respond to requests for comment on what impact they believed the blocked MoneyGram deal would have on them.

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