MoneyGram to sell big stake

Article by: STAFF and WIRE REPORTS , Star Tribune
Updated: February 12, 2008 - 8:25 PM

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MoneyGram International Inc., the St. Louis Park money-transfer firm that lost millions this year on bad investments, agreed to sell a majority stake to Thomas H. Lee Partners and Goldman Sachs Group Inc. in exchange for a cash infusion of as much as $1.5 billion.

MoneyGram, the second-largest transfer company after Western Union Co., will issue as much as $775 million in preferred stock to the investors, and will borrow as much as $700 million from Goldman, the company said Tuesday in a statement. The deal values the company's equity at about $1.1 billion after the infusion.

MoneyGram joins financial firms including Countrywide Financial Corp. and Merrill Lynch & Co. that have been forced to sell themselves or seek new capital after a drop in the value of their holdings of securities backed by U.S. home loans. The company said that through Monday, it has sold about $1.8 billion of its securities portfolio at a loss of $380 million.

"This transaction results in the best alternative available to its shareholders and is critical to the long-term health and vitality of MoneyGram," Philip Milne, MoneyGram's chief executive, said.

However, the deal must still be approved by the company's shareholders, many of whom have lost trust in MoneyGram's senior management since the company last month announced an $860 million write-down on securities backed by mortgages.

Louis Shapiro, principal at Shapiro Capital Management, an Atlanta investment firm that owns about 9 percent of MoneyGram's stock, said he couldn't judge the merits of the transaction until the company provides a detailed breakdown of its investment portfolio.

MoneyGram shares fell 40 cents Tuesday, or 7.5 percent, to close at $4.91.

Bloomberg News and staff writer Chris Serres contributed to this report.