Even if the news were quenched, the debate lingers

The news gained momentum on May 5th when Bloomberg reported that WU was in talks with MGI. Immediately MGI shares shoot up almost 40% and WU shares also went up slightly. My phone started ringing with investment advisor asking for my opinion. I had little to say, really. But the following day…


The following day, WU announced that the news of the acquisition discussions “are not accurate.” What does this means? That yes they are talking but not exactly on an acquisition?
Everybody in the industry thinks: Will regulators squash this deal quickly as they did twenty years ago? I think they might still, with the “too big to fail mentality” looming now. An anonymous blogger at SeekingAlpha.com, a website I follow for their irreverent and opinionated analysis of stocks, wrote this post: http://bit.ly/1QHTRlz Western Union acquisition of MoneyGram does nothing to stem new entrants and industry disruption that you can read here: . He thinks that the deal might go through. Read on.

The post analyzes the synergies that we all understand, but places significant emphasis in the development of start-ups in the online and mobile space, thereby contributing at the relentless commoditizing of remittances, a process that my colleague Salvador Velazquez feels is much more acute that I personally believe. The author of the post states: “The industry continues to be disrupted by new internet-based and mobile platforms that are likely to start taking significant share from WU while commoditizing the industry.” The author states that WU “has been the beneficiary of positive pricing trends and subsiding compliance costs. In addition, their electronic channels continue to expand rapidly and now account for 6% of revenues as it grows at a mid-20% rate. The share price, we [he] believe, is not reflecting new risks to the traditional money transfer businesses, especially within the c2c [P2P] channel which accounted for 79% of company revenue in the first quarter”.

He then goes to conclude – after an analysis that I won’t copy-paste but you should read, that “we think regulators would approve a deal between the two companies” based on the competition by digital channels and WU eroding pricing power. This paragraph is interesting: “We think the ‘Internet’ remittance market is likely to struggle given the large marketing expenditures needed to acquire customers in a falling pricing environment. Customer acquisition costs will likely negate any market share gains while the low barriers-to-entry in the online money transfer space will keep a lid on pricing power”. And concludes: “we think the industry is in the midst of disruption. While that disruption may not come for another year or two or more, it still bears risks for Western Union and their traditional business model”.

I would love to read your opinions so I hope you go in LinkedIn and join the conversation.