Genworth Eyes Partial IPO as $2.7B Deal with China Oceanwide Stalls

Genworth Financial and China Oceanwide Holdings Group Co. can’t seem to put the finishing touches on their agreement for Oceanworth to buy Genworth, a $2.7 billion cash deal that was first proposed in October 2016.

The parties had originally hoped to close by Nov. 30, 2020 and said they were working on an extension of that deadline but that has not happened.

The merger agreement remains in effect even though neither party is proposing to extend the end date at this time. Rather they say they will get back together if some of the obstacles to closing the deal can be addressed. According to Oceanwide, those obstacles include the finalization of the Hony Capital financing terms and restrictions brought about by the pandemic.

“Oceanwide has shared that it will continue to work towards closing the transaction, and Genworth remains open to completing the transaction if Oceanwide completes the remaining steps,” said a statement released by the two parties.

In the meantime, Delaware-based Genworth has a backup plan. It said it is focusing on executing a potential partial initial public offering (IPO) of Genworth’s U.S. mortgage insurance business, which would help it meet near-term liabilities of approximately $1.0 billion of debt due in 2021.

Genworth has already executed other parts of its contingency plan to recover from losses on its long-term care business. It has closed on the sale of its Canadian mortgage insurance business for approximately $1.8 billion in December 2019 and completed a $750 million debt offering at the U.S. mortgage insurance holding company level in August 2020.

In addition, Genworth said it settled litigation with AXA in July 2020.

As a result of actions it has taken, Genworth said it has reduced holding company debt over time and built a position of approximately $1.0 billion in cash and liquid assets as of December 31, 2020. Approximately $340 million of this cash balance is ring-fenced to pay for Genworth’s February 2021 senior notes at maturity. Genworth previously disclosed that it intends to manage its U.S. life insurance companies on a standalone basis with no plans to infuse capital into those companies in the future, absent an Oceanwide transaction.

James Riepe, non-executive chairman of the Genworth board, putting the situation with Oceanwide in context, said when its directors weighed another extension they believed a closing on the deal was near. But that is no longer the case.

“Given the most recent update, we do not believe a closing can occur in the near term. Thus, the management team will fully focus its efforts on executing our contingency plan,” he said.

Tom McInerney, Genworth president and CEO, said the “parties retain the ability to ultimately complete the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing, and if the transaction is still in the best interests of Genworth at that time.”

LU Zhiqiang, chairman of Oceanwide, said his company still believes the value of the transaction is “significant for both parties’ stakeholders,” and his team is continuing to work towards completing the transaction with Genworth.

Regulatory Approvals

The transaction has received all U.S. regulatory approvals needed to close the transaction. The deal had been stalled over concerns by the Committee on Foreign Investment in the United States (CFIUS) about Chinese access to sensitive U.S. personal data. That panel eventually approved the deal in June 2018 after Genworth agreed to use a U.S.-based, third-party service provider to manage the data of its U.S. policyholders.

The securities industry’s self-regulatory body, the Financial Industry Regulatory Authority, has confirmed that the transaction may close. The North Carolina Department of Insurance has extended its previously-granted approval through Jan. 24, 2021. The transaction is still subject to confirmation by the Delaware Department of Insurance.

Also, China’s National Development and Reform Commission last month renewed its approval of the acquisition.

Given the passage of time as well as the terms of these approvals, the parties said they will need to assess whether re-approvals or confirmations are necessary at the appropriate time.

Genworth sells mortgage insurance and long term care insurance.

Oceanwide is a privately held, family owned international financial holding group founded by LU Zhiqiang. Headquartered in Beijing, China, Oceanwide’s businesses include operations in financial services, energy, technology information services, culture and media, and real estate assets globally, including in the United States. Oceanwide also has real estate investments in the U.S.