Within the past 12 months, the stock price of MoneyGram International (NYSE: MGI) was nearly $31. Now, the stock price is at a lowly $5.26. In fact, the stock price plunged nearly 50% just today.
The problem? Well, the company is in the process of a bailout, with the help from private equity sponsor, Thomas H. Lee Partners. Basically, MoneyGram binged on mortgage securities and got into a bit of trouble.
Based on reports so far, it looks like Thomas H. Lee will pony up $750 million to $850 million in fresh equity for 60% to 65% of the firm. Yes, that's big-time dilution.
Interestingly, the fuzziness of the deal is primarily the result of the difficulties of unloading the MoneyGram portfolio. And it could be very difficult, as seen with the troubles at Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).
While MoneyGram is a check cashing firm, it also wanted to find ways to jack up returns on its huge deposits. So why not put some of the cash into exotic mortgage investments?
Yes, it's an expensive lesson.
In fact, several months ago MoneyGram received a $20-per-share buyout offer from Euronet -- and rejected it. Now, it looks like Euronet is back to the table -- with lots of leverage.
Tom Taulli is the author of various books, including The Complete M&A Handbook
