("Exploring the Possibility of Western Union Buying MoneyGram")
In the world of international money transfers, a potential merger between Western Union and MoneyGram is causing ripples. If antitrust and regulators give the green light, the deal could be a strategic move that benefits the acquiring company significantly.
Currently, Western Union trades at an 8x equity/EBITDA multiple, and if the companies can find the elusive $125 million in synergies, the deal would pay for itself. The combined companies would control around $110bn in cross-border payments flow, accounting for less than 20% of the $600-700bn remittances market size.
However, competition authorities may have concerns about the combination, particularly in cash pay-in corridors to the developing world. This is not an unfounded worry, as Western Union and MoneyGram are dominant in some regions, such as Africa, and in outlets like Post Offices, with few competitors.
The market's positive view of the acquisition has added around $900 million to Western Union's own equity value. But it's not all smooth sailing; there are risks associated with the deal, though they are not detailed here.
Interestingly, Euronet's Ria has launched an alternative bid for MoneyGram, potentially making a Western Union-owned MoneyGram a very small second place player in the market. Euronet's stock has been affected by the pandemic, currently depressed by around a third.
Ant Financial, who previously attempted to buy MoneyGram, may also be in the running again, as market conditions, regulatory approvals, or strategic priorities have changed since their previous attempt. PayPal (who owns Xoom) could potentially enter the cash pay-in market, but their desire to do so remains uncertain.
If the deal goes through, the combined companies could potentially increase the market size to $2bn and reduce the share of flows to 5%. This could be achieved by including more of the consumer-to-consumer (C2C) market. The total selling, general, and administrative costs of the combined companies could be reduced by more than $1.6 billion.
Moreover, bringing the costs of shared functions in operations, treasury, and head office together could result in additional savings for Western Union. The cost savings from the deal could amount to around $100 million due to the lower agent costs of MoneyGram compared to Western Union.
In conclusion, the potential merger between Western Union and MoneyGram promises significant benefits, but it also presents challenges that need to be navigated carefully. The outcome will undoubtedly reshape the remittances market landscape.
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