Shares of MoneyGram International Inc. (MGI - Analyst Report) unexpectedly dipped 1.9% on Mar 25, following the announcement of secondary stock offering by the company’s primary investors — Thomas H. Lee Partners, L.P. and affiliates of The Goldman Sachs Group Inc. (GS - Analyst Report).
Accordingly, the aforementioned investors of MoneyGram have underwritten 8 million shares for selling via public offering. Additionally, the investors have also granted a 30-day option to buy another 1.2 million shares. However, MoneyGram will not receive any proceeds from the secondary offering. Assuming yesterday’s closing price of $18.46, the investors should be able to generate gross proceeds of about $170 million, including the optional offering.
On the other hand, MoneyGram also intends to buy back shares worth $150 million in a private offering from its primary investors. The share price will based on the mid-point of the secondary offering price and the market price. The company plans to raise a term loan in order to fund this share repurchase. Amid the secondary offering, share buyback and new term loan, MoneyGram is seeking to expand the share repurchase from investors up to $300 million.
Moreover, net core earnings accretion of 10 cents per share is projected from the share repurchases. Further, MoneyGram has appointed JP Morgan Chase & Co. (JPM - Analyst Report), Goldman, Sachs & Co., BofA Merrill Lynch of Bank of America Corp. (BAC - Analyst Report) and Wells Fargo Securities of Wells Fargo & Co. (WFC - Analyst Report) as the book-running managers. Moreover, Macquarie Capital and William Blair & Co. were assigned as co-managers.
Core Growth in Progress
The company’s improving capital and free cash position has backed this capital restructuring decision. Adjusted free cash flow surged 29% to $149.8 million in 2013, while consistent cash flow, sturdy capital position and optimistic guidance for 2014 are deemed impressive.
MoneyGram has not only been vigorously working to restructure its capital but has been maintaining its money transfer network expansion as well. In this context, earlier this week, the company renewed its 17-year money transfer alliance with the UK Post Office Ltd., retaining its 11,500 postal locations. According to the World Bank, UK boasts of incremental remittances with an outward money transfer market worth of $3.7 billion.
Additionally, MoneyGram added Brazil-based financial services company — Confidence Câmbio to its money transfer network last week. This will help fortify the company’s roots in Latin America, Mexico and the Caribbean regions, wherein Latin America had inbound remittances of about $2.6 billion and outbound remittances of about $1.0 billion in 2012, according to the World Bank.
Overall, such efforts progressively help enhance the operating and competitive leverage of the company and boost its brand value. Currently, MoneyGram carries a Zacks Rank #4 (Sell).