MoneyGram International Inc., the St. Louis Park money-transfer specialist that is the target of a hostile takeover bid, said it has found its white knight -- just as the company also revealed how badly it needs to be rescued.
MoneyGram said late Monday that it is in talks with an investor group led by private equity firm Thomas H. Lee Partners for an equity investment of $750 million to $850 million, enough to give the group majority control of the company. In addition to the equity investment, MoneyGram is negotiating with lenders for $550 million to $750 million in debt financing.
MoneyGram is paying the price for a big bet on the U.S. housing market, and the cost is proving much steeper than previously disclosed.
As of Nov. 30, the company's investments in mortgage-backed securities had posted a loss of $860 million, including $571 million in October and November alone. That loss is unrealized, or on paper, but this month the company took an actual loss of $200 million when it sold $1.3 billion in securities.
A MoneyGram spokesman, Michael Fox, confirmed that the company is in the process of liquidating most of its investment portfolio this month. It will invest, instead, in government obligations and other more liquid securities, but warned that would have an impact on profit margins. The company is also changing its business model and expects to end contracts with some of its biggest customers. Fox declined to name those customers or say what impact that would have on revenue or profitability.
In October, MoneyGram revealed a $230 million loss on mortgage-related investments. The company's stock, then at $22.56 a share, fell sharply on fears of a further markdown -- fears that were realized Monday. (MoneyGram shares closed Monday at $12.17 before the announcement.)
Last month, MoneyGram rival Euronet Worldwide Inc. offered to buy MoneyGram for $1.65 billion in stock. MoneyGram rejected the offer, offering to talk only if Euronet agreed to stop pursuing its bid, but in late December Euronet continued its pursuit and urged MoneyGram to discuss its offer.
MoneyGram said the deal under discussion with Thomas Lee does not preclude the company from completing a transaction with another party, "subject to a customary break-up fee." Fox declined to say what that fee was. "That information will be in the proxy," he said.
