What a Western Union-Moneygram deal might look like

Customers enter a Western Union outlet in Rome, Italy.

A report suggesting Western Union Co. is within preliminary foretells buy Moneygram International Inc. will certainly raise some eyebrows, particularly because antitrust regulators objected to a tie-up between the rivals 2 decades ago.

The competitive landscape is different since then and is arguably more intense with the emergence of digital alternatives as well as the likes of Wal-Mart Stores Inc. getting into on the action.

Nonetheless, such a deal would still mean the No. 1 money transfer provider is getting the No. 2 player. Western Union’s market share currently sits at about 15 percent, while Moneygram’s is between four and five per cent.

Western Union’s apparent interest in Moneygram is new, but J.P. Morgan points out that a potential sale of Moneygram isn’t.

Analyst Tien-tsin Huang noted that reports emerged in 2013 that private-equity firms and Euronet Worldwide Inc. were looking at buying Moneygram. The organization is majority owned by Thomas H. Lee Partners and Goldman Sachs Group Inc.

What might an offer look like? Moneygram were built with a market cap of US$415 million, before its share increased on the report. However, it also has US$840 million in net debt as well as an estimated US$175 million worth of convertible preferred shares outstanding.

Since Western Union has US$800 million of accessible liquidity in the U.S. and US$1.8 billion overall, Huang noted that funding such a transaction would probably include equity. That assumes Western Union wants to keep its investment-grade debt rating and it is willing to give up its share buyback program, that is set they are driving 1.5 percent of its EPS growth this season.

The analyst noted the potential for meaningful synergies inside a merger would likely depend on whether Western Union retains the MoneyGram brand.

Huang thinks Western Union often see EPS accretion if your deal is done at between US$10 and US$11 per MoneyGram share. However, he warned that dilution is possible if the price tag exceeds US$20 per share.

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