MoneyGram investor blasts offer

A major shareholder of MoneyGram International Inc. is pressuring the company's board to reject a deal that would hand control of the St. Louis Park company to a private buyout firm.

Shapiro Capital Management of Atlanta sent a letter Friday to the company's board and chief executive, saying that Shapiro felt "considerable dismay and infuriation with a number of activities and occurrences at MoneyGram," including a proposal to sell a controlling interest in the company to Boston buyout firm Thomas H. Lee Partners for as much as $850 million.

The shareholder, which owns 9 percent of MoneyGram's stock, said the proposed investment "does not recognize the full value of MoneyGram, but instead provides a control position at a depressed valuation price to an opportunistic investor." MoneyGram's stock has plunged from $30 a share in July to $5.21 Friday, as the company has disclosed widening losses from bad investments in the subprime mortgage market. The value of the Shapiro stake has likewise nose-dived, falling from $178.7 million Oct. 1 to $40.4 million Friday.

Michael Fox, a spokesman for MoneyGram, said Friday that the company was reviewing the letter, but he declined to comment further.

Chairman and Chief Executive Phil Milne, as well as three directors on the money transfer firm's 11-person board, could not be reached for comment Friday.

Shapiro is the second large shareholder of MoneyGram to publicly criticize the company's senior management since it began to disclose its investment losses last fall.

In December, a San Francisco investment firm, Blum Capital Partners, which owns 14.2 percent of MoneyGram's stock, strongly urged the company to reconsider an unsolicited, $1.65 billion buyout offer from rival Euronet Worldwide, an offer that MoneyGram had largely dismissed that month. Under the Euronet offer, MoneyGram shareholders would have received $20 a share. The possible deal with Thomas H. Lee, valued at between $5.50 and $6 a share, was announced the day the company said it took $860 million in write-downs on assets backed by risky subprime mortgages through November.

MoneyGram executives declined to negotiate, because Kansas-based Euronet would not sign a two-year "standstill" agreement, which would have required Euronet to drop its bid if a deal wasn't reached.

In a letter filed with the U.S. Securities and Exchange Commission, Blum Capital said that "the onerous restriction of a standstill agreement is antithetical to the goal of shareholder value maximization during a proposed negotiation process."

The two large shareholders, as well as several analysts who follow the company, have said MoneyGram's executives should have disclosed the extent of the risks in its investment portfolio much earlier. They also don't think the damage is finished. Some analysts expect losses to top $1 billion.

"The disclosure has been a process of dribbles," said Robert Dodd, an equity analyst with Morgan Keegan & Co. "If shareholders knew what was in this investment portfolio back in July, they could have made a much more educated assessment about whether they wanted to own this stock."

Samuel Shapiro, chairman of Shapiro Capital, said in an interview Friday that MoneyGram could have covered the losses in its investment portfolio through a so-called "rights offering," in which existing shareholders could buy newly issued stock.

"I think there was a lot of panic, and management has sold the company at the worst possible time," said Shapiro, who has owned MoneyGram stock for three years.

"Had additional funds been given by shareholders, the company would have had time to work out their problems without Thomas Lee coming in and buying the company at a fire sale."

Shapiro declined to be specific about what additional steps he would take if MoneyGram dismissed his ideas. "I'm considering any and all action to make sure shareholders are treated fairly," he said.

Shapiro also questioned the advice given by MoneyGram's investment adviser. J.P. Morgan Chase has a $150 million credit facility with MoneyGram, and also acts as the company's strategic adviser. "J.P. Morgan's advice and counsel to MoneyGram is skewed in favor of protecting MoneyGram's creditors, at the detriment of MoneyGram's stockholders," Shapiro wrote in his letter to MoneyGram's board.

Though several analysts said they agreed with Shapiro's views, they said his letter to MoneyGram's board is too late to make much difference.

The company disclosed Jan. 14 that its lenders have agreed to waive "certain events of default" arising from its investment losses -- but only through the end of this month. That means the company likely will go ahead with the Thomas H. Lee offer unless a better one comes along by Jan. 31.

The time for a rights offering has run out, said Dodd of Morgan Keegan. "If lenders know that Thomas H. Lee will put in $800 million, they'll let MoneyGram off the hook," Dodd said. "It needs to be a quick process."

Chris Serres • 612-673-4308