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  • Restructuring

    MoneyGram International, Inc.

    Red Robins Allison Ahr Alexandra Costa Tera Gallegos Luis Sosa

    Columbia University Columbia Business School Professor: Dr. Kathryn Rudie Harrigan August 21, 2015

  • 1

    TABLE OF CONTENTS

    EXECUTIVE SUMMARY ....................................................................................................................... 2

    OVERVIEW AND HISTORY .................................................................................................................. 2

    History ........................................................................................................................................ 2

    Business Segments.................................................................................................................... 3

    INDUSTRY ANALYSIS .......................................................................................................................... 5

    Porters Five Forces .................................................................................................................... 5

    Competitive Landscape .............................................................................................................. 6

    COMPANY PROFILE ............................................................................................................................ 7

    SWOT Analysis .......................................................................................................................... 7

    Altman Z Score .......................................................................................................................... 8

    2014 Global Transformation Program ........................................................................................ 9

    FINANCIAL ANALYSIS .......................................................................................................................... 9

    Comparison to Benchmark Competitors ..................................................................................... 9

    PLAN OF REORGANIZATION ............................................................................................................ 10

    Liquidate MoneyGram .............................................................................................................. 11

    Sell to a strategic or financial buyer .......................................................................................... 11

    Stand-alone turnaround ............................................................................................................ 11

    FINANCIAL RESTRUCTURING .......................................................................................................... 12

    Debt analysis............................................................................................................................ 12

    Debt-to-Equity Swap ................................................................................................................ 13

    OPERATIONAL RESTRUCTURING .................................................................................................... 13

    CONCLUSION ..................................................................................................................................... 15

    EXHIBITS16

  • 2

    EXECUTIVE SUMMARY

    MoneyGram International (MoneyGram) is the second-largest money transfer company in the world

    and has $1.45 billion in annual revenues. Yet its stock price lags behind its primary competitors, and its

    margins, financial performance and key ratios are paltry in comparison. In 2008, MoneyGrams stock

    was close to being delisted when it lost nearly 90% of its market value. In an attempt to turn

    MoneyGram around, Pamela Patsley was brought on as executive chairman of the board and CEO in

    2009. To date, MoneyGram continues to struggle in the market. More drastic changes will need to be

    initiated in order for the company to survive as well as become a viable competitor in the global money

    transfer and payment services industries.

    Through this paper we will look to frame the environment that MoneyGram operates in, assess its

    viability as a going concern, and recommend a restructuring plan to turnaround the company. We will

    outline three scenarios, one considering the ultimate fate of the company if business continues status

    quo, one considering an operational restructuring, and another considering liquidation of the company.

    After a close assessment of the industry, competitive landscape, and the companys financial and

    strategic position we will demonstrate that an operating restructuring plan is the optimal path forward for

    the company.

    OVERVIEW AND HISTORY

    History

    MoneyGram provides worldwide funds transfer through their network of approximately 350,000

    locations - including retailers, international post offices and banks in more than 200 countries and

    territories, and through mobile and online channels. In addition to financial services provided through

    third-party agents, MoneyGram owns and operates retail locations in several countries. They also offer

    bill payment services in the U.S., Canada, Puerto Rico and certain agent locations in select Caribbean

    countries. MoneyGrams products enable customers not fully served by traditional financial institutions

    to meet the monetary demands of their daily lives1.

    MoneyGram is headquartered in Dallas, Texas, and has an operations center in St. Louis Park, MN. It

    is listed on the NASDAQ Stock Exchange under the ticker symbol MGI. Currently, the company is 51%

    owned by Thomas H. Lee Partners and Goldman Sachs.

    1 http://corporate.MoneyGram.com/about-MoneyGram/history

  • 3

    MoneyGrams roots trace back to the 1940s, with the founding of Travelers Express Co., Inc. Travelers

    Express was one of the world's largest processors of money orders and a major player in the electronic

    payments industry. MoneyGram was formed in 1998 when Travelers Express Cos parent company

    (Viad Corp.) purchased international money transfer company MoneyGram Payment Systems Inc.

    Travelers Express and MoneyGram Payment Systems Inc. merged to form MoneyGram, which became

    a globally recognized brand. On June 30, 2004, Viad sold MoneyGram, and it became a publicly

    traded, individual entity. Philip Milne became CEO of MoneyGram in June 2004. During his four-year

    tenure, which ended in June 2008 MoneyGram lost nearly 90% of its market value and its stock came

    close to being delisted on the New York Stock Exchange.

    MoneyGrams financial woes coincided with the beginning of the Great Recession in the United States,

    which officially began in December, 2007. Back in July 2007, MoneyGrams stock was trading at $30

    per share and the money-transfer business was booming. At that time, Milne and top management told

    analysts that despite the companys investments in mortgage-back securities, that its investment

    portfolio was doing fine. That all changed in January 2008, when $860MM of bad investments,

    including assets backed by subprime mortgages, resulted in a major loss for MoneyGram.

    In March 2008, at the height of the financial crisis, the company completed a recapitalization that would

    begin steering it back on course. Thomas H. Lee Partners and Goldman Sachs Group purchased

    MoneyGram preferred stock for $760 million, which was convertible into 79% of common stock.

    Goldman also pitched in $500 million for debt financing.

    In 2008 a search firm hired by THL and Goldman Sachs contacted Pamela Patsley to turn MoneyGram

    around. She joined the company in January 2009 as executive chairman of the board, and became its

    CEO in September 2009. Patsley described her excitement about joining MoneyGram as ...a chance

    to leverage everything Ive done, but yet not be the same. It was an opportunity to build out a team, re-

    energize the company, fix it up, and leave my mark on ithopefully leave it with a great and amazing

    culture and take it forward.2 Upon joining MoneyGram, Patsley bought a signficant amount of stock,

    officially putting her money where her mouth is.

    Since 2009 MoneyGram has gone through a second recapitalization (May 2011), launched a Global

    Transformation Program focused on compliance enhancement, reorganization and restructuring, as

    well as spurred growth in self-service avenues (February 2014).

    Business Segments

    MoneyGram has two primary reporting segments: Global Funds Transfer which includes money

    transfer and bill payment, and Financial Paper Products which includes money order services and

    2 http://www.dmagazine.com/publications/d-ceo/2011/november/MoneyGrams-turnaround-artist?single=1

  • 4

    official check processing. Revenue in 2014 is comprised of the following: money transfers (87.6% of

    revenue), bill payment services (6.9%), money order services (3.7%) and official check processing

    (1.8%).

    Money Transfers: Movements of funds between consumers from the origination or "send" location and

    the designated "receive" location. MoneyGram earns revenue from the fees paid by the consumers

    sending the funds and from the management of currency exchange spreads on money transfer

    transactions involving different send and receive curre