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Western Union (WU) stock rose by 11% amidst the talks on the acquisition of MoneyGram. While the acquisition is nor confirmed officially, the news has stirred positive reactions in the market.
There have started negotiations between the Western Union Company (NYSE: WU) and MoneyGram International Inc (NASDAQ: MGI) over the acquisition of the latter in a bid to absolve the smaller money transfer firm of its financial woes. This development has spiked positive market reactions this week as Western Union stock gained 8% in the pre-market yesterday as MoneyGram also recorded a spike of 38%.
Market indications keep improving as Western Union recorded an 11% increase in its stock pre-market on Wednesday helping to balance MoneyGram’s stocks at 29.73% premarket. Analysts are speculating that the continued growth of these company’s stock prices may usher in a robust future should the acquisition pull through.
Now Western Union stock is 0.37% down, at $23.01. Meanwhile, MGI stock is trading at $3.38 (+0.67%).
The Origin of Acquisition Talks between MoneyGram and Western Union
MoneyGram International Inc is a U.S.-based money transfer company founded in 1988 to provide Global Funds Transfers and Financial Paper Products which it is currently doing through an extensive network of agents and financial institutions. The company has had a series of legal cases involving fraudulent transactions which have contributed to the fracture in finances the company is suffering to date.
The economic nightmare invoked by the coronavirus pandemic has brought to fore the dwindling market grip the company has enjoyed year on year. MGI recorded a total revenue was $315.4 million in 2019 which represented $64.6 million less of the $380 million reported in 2018. The company’s total revenue of $290.9 million reported in Q1 2020 further confirms the downward trajectory of the company’s cash reserve despite a significant investment from Ripple.
Western Union, a stronger money transfer company with total revenue of $1.2 billion saw the fragile position of MoneyGram and opened negotiations for a probable acquisition of the rival firm. While the offer has not been made official, Western Union will be joining the list of other companies who tried to acquire MoneyGram in the past. The unofficial news of this acquisition has contributed to the sustained rise of the stocks of the two companies.
There are many sides to the coin with respect to the acquisition potentials. If the offer is confirmed and the acquisition pulls through, there is a guarantee that MoneyGram will be managed by a firm with a large operating budget and management. These can guarantee better growth potential for Western Union as the company will take advantage of the extensive network of MoneyGram agents to expand their business reach. A major risk, however, lies in the growth of alternative money transfer means afforded by digital currencies. Considering existing cryptocurrencies and Facebook Inc (NASDAQ: FB) prospective Libra, the narrative for the profitability of Western Union will have to be reviewed.