Goldman Sachs & THL Provides MoneyGram the Capital to Stay Afloat In Exchange for 63% Stake

Implications: The "Investors" (Thomas Lee Partners & Goldman Sachs) will provide MoneyGram, the 2nd largest non-bank money transfer owner/operator with the capital to strengthen its balance sheet in exchange for a 63% equity stake. MoneyGram was approached by Euronet Worldwide in December 2007 with an unsolicited bid to acquire MoneyGram for $1.65 billion, however, Euronet asked MoneyGram to enter into a "standstill agreement." MoneyGram responded by asking Euronet to enter into a mutual "standstill agreement," which would prevent both parties from negotiating or soliciting a similar transaction with other parties during the negotiations period. Euronet balked at MoneyGram's request and viewed MoneyGram's response as a defense mechanism to stave off a potential hostile takeover and Euronet backed off. MoneyGram suffered setbacks in 3Q07 after expanding its portfolio holdings to include mortgage backed securities; consequently, MoneyGram took a hit and had to write down over $230 million.

Analysis: MoneyGram hired JP Morgan in 3Q07 to conduct a strategic review of its Payment Systems Business, including its check outsourcing business, portfolio strategy and capital implications. After the review was completed, MoneyGram put itself up for sell to recapitalize its portfolio in an effort to make its portfolio less risky and "The Investors" (THL and Goldman Sachs) will invest up to $775 million for a 63% stake in MoneyGram.

1.  MoneyGram also received a multi-year extension with Walmart through 2013 to provide money transfers, bill payments and money order services at Walmart stores and the multi-year extension with Walmart is contingent upon the deal going through with "The Investors"

2.  It's unclear if Euronet Worldwide will have the same appetite for MoneyGram it had back in December 2007. Since the start of 2008, MoneyGram's share price has tanked by over 64% and if MoneyGram does exercise its option to "go shop" and a superior deal is consummated, MoneyGram's multi-year extension with Walmart may be jeopardized

Takeaway:  The subprime debacle in the U.S. has had a rippling effect on global financial markets. MoneyGram joins a long list of investors' who invested in risky mortgage backed securities to grow their portfolio, only to see losses mount after the subprime market bottomed out.