(Corrects name of CEO to Brown, not Browne)
BANGALORE, Dec 13 (Reuters) - Electronic payments provider Euronet Worldwide Inc (EEFT.O) made an unsolicited offer to buy rival MoneyGram International Inc MGI.N in a stock deal worth about $1.65 billion, as it seeks to create a company that will tap rapid growth of the money transfer market in emerging countries.
In a letter sent to MoneyGram’s board on Dec. 4, Euronet said its offer, valued at $20 per MoneyGram share, was a premium of about 43 percent to MoneyGram’s closing price on that day.
MoneyGram said after receiving an initial overture for a proposed deal, it responded to Euronet on terms discussed in the proposal. But on Dec. 12, MoneyGram said Euronet fired back that it was not prepared to pursue talks on that basis.
“We are determined to complete this transaction and I’ll reiterate that we are prepared to take all steps necessary, including commencing an exchange offer to MoneyGram shareholders in a proxy contest for board representation,” Chief Executive Michael Brown said in a conference call on Thursday.
MoneyGram’s shares are up 14.3 percent at $17.03 in afternoon trade on the New York Stock Exchange, making them the largest percentage gainers.
The stock has lost almost half of its value since hitting a high of $32.24 in January.
“In our opinion, this proposal represents maximum value MoneyGram shareholders could hope to achieve in the near-term,” Calyon Securities analyst Craig Maurer wrote in a research note.
Maurer downgraded MoneyGram to “sell” from “neutral” and maintained a price target of $17.
In a statement on Thursday, MoneyGram said it has not yet concluded valuation of its securities portfolio and investors should not expect its financial results to be consistent with its previously announced 2007 outlook given on Oct. 17 when it released third quarter results.
MoneyGram had said net unrealized investment portfolio losses rose by about $230 million, a result of the illiquidity in the market for subprime asset-backed securities and collaterized debt obligations.
Last month, Moody’s Investors Service cut the company’s credit ratings to “junk” due to the exposure to subprime securities.
The Minneapolis, Minnesota-based company also said it was currently in talks with certain potential investors regarding financing options.
Leawood, Kansas-based Euronet, which expects the transaction to yield double-digit accretion to its cash earnings beginning in 2008, said it would increase the offer price if results of its due diligence review warrant it.
In the conference call, Euronet also said it expects cost savings of $36 million through the proposed deal.
Calyon’s Maurer said the deal makes sense for Euronet’s money transfer business, which sees an opportunity to combine MoneyGram’s worldwide network and scale with its own Ria Financial Services money transfer business in one quick shot.
The combined company is expected to have global transaction volume of about 6 percent, however, the industry would still be dominated by Western Union Co (WU.N), which holds an almost 18 percent market share.
Euronet said the deal would enable the companies to benefit from fast growth of the money transfer market in key emerging countries, such as China and India.
“These markets, along with the Philippines and Central Europe, are the holy grail in the money transfer business today,” Brown said in the conference call.
Shares of Euronet were down more than 13 percent at $28.35 on the Nasdaq. (Reporting by Purwa Khandelwal in Bangalore; Editing by Jarshad Kakkrakandy, Bernard Orr)