By Jeremy C. Owens, MarketWatch
MoneyGram International Inc. is officially getting on the blockchain, and will be rewarded handsomely by a prominent company in the cryptocurrency space.
The money-transfer service announced Monday afternoon that it has agreed to a deal with blockchain company Ripple that involves an investment of up to $50 million at prices nearly three times the closing price of MoneyGram /zigman2/quotes/208548401/composite MGI +2.22% stock. MoneyGram will use Ripple’s XRP /zigman2/quotes/108573966/realtime XRPUSD -1.80% technology to handle cross-border transfers of digital funds for at least two years under the deal.
Ripple agreed to purchase $30 million worth of freshly created MoneyGram shares at $4.10 apiece, and can purchase another $20 million more at its discretion at a minimum of $4.10. MoneyGram shares closed Monday at $1.45, but exploded higher after the announcement, close to $4 a share, — or more than 150% higher — in after-hours trading. The cost of an XRP coin jumped more than 5% immediately after the announcement.
MoneyGram has struggled since a $1.2 billion deal to sell the company to Ant Financial — a Chinese financial-services company helmed by Alibaba Group Holding Ltd. /zigman2/quotes/201948298/composite BABA +0.50% founder Jack Ma — was blocked by U.S. authorities. Shares have dropped 80% in the past year, as the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.60% has gained 3.9%.
MoneyGram said in Monday’s announcement that it is nearing a refinancing of a loan and revolving credit facilities in the wake of the investment. The company has nearly $900 million in total debt, according to its most recent financial statements.
For Ripple, the deal gives it a chance to prove its blockchain technology can bring down the time and cost involved in moving money across borders. The company has already been testing its approach with MoneyGram since early 2018.
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“This strategic partnership will enable MoneyGram to greatly improve its operations and enable millions of people around the world to benefit from its improved efficiency,” Ripple Chief Executive Brad Garlinghouse said in a statement Monday. “This is a huge milestone in helping to transform cross-border payments and I look forward to a long-term, very strategic partnership between our companies.”
Ripple claims that its blockchain technology allows for digital trades of currencies much faster and cheaper than current technology. In its announcement, it said that traditional transfers can take up to an hour and cost up to $30, while its xRapid product can handle the transactions in two to three seconds at a cost of fractions of a penny.
Ripple’s XRP cryptocurrency has also struggled since the beginning of 2018, when it challenged bitcoin /zigman2/quotes/31322028/realtime BTCUSD -1.03% for dominance in the crypto space. Trading at more than $3 a coin then, XRP was trading for a little less than 43 cents a coin before Monday’s announcement, when it moved closer to 46 cents.