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With China Oceanwide $2.7B Deal to Buy It Stalled, Genworth Eyes Partial IPO

2021-01-05 15:17:21

Genworth Financial and China Oceanwide Holdings Group Co. appear to be putting the finishing touches to their agreement for Oceanworth to buy Genworth, a $ 2.7 billion cash deal first proposed in October 2016.

The parties had initially hoped to close on November 30, 2020 and said they were in the process of extending that deadline, but that didn't happen.

The merger agreement will remain 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 obstacles to closing the deal can be addressed. According to Oceanwide, those obstacles include the completion of Hony Capital's financing terms and restrictions as a result of the pandemic.

"Oceanwide has announced that it will continue to work on closing the transaction and Genworth remains open to completing the transaction if Oceanwide completes the remaining steps," the two parties said.

Meanwhile, Delaware-based Genworth has a backup plan. It said it is targeting a potential partial initial public offering (IPO) of Genworth's US mortgage insurance company, which would help it pay off short-term liabilities of approximately $ 1.0 billion in debt by 2021.

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

In addition, Genworth said it resolved a dispute with AXA in July 2020.

As a result of the measures it has taken, Genworth said it has reduced the holding company's debt over time and built a position of approximately $ 1.0 billion in cash and cash equivalents as of December 31, 2020. Approximately $ 340 million of this cash balance has been set aside. to pay for Genworth & # 39; s February 2021 senior notes at maturity. Genworth previously announced that it plans to manage its US life insurance companies on a standalone basis, with no plans to put capital into those businesses in the future, without an Oceanwide transaction.

James Riepe, non-executive chairman of Genworth's board of directors, who put the situation with Oceanwide in context, said that when the directors weighed in on another extension, they thought the deal was near. But that is no longer the case.

“Given the most recent update, we don't think there will be any closure any time soon. The management team will thus fully focus its efforts on implementing our contingency plan, ”he said.

Tom McInerney, president and CEO of Genworth, said that the "parties retain the ability to eventually close the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to close and if the transaction is still in the best possible way. Genworth's importance is at the time. "

LU Zhiqiang, Chairman of Oceanwide, said his company still believes the value of the transaction is "significant to the stakeholders of both parties" and that his team continues to work towards completing the transaction with Genworth.

Regulatory Approvals

The transaction has received all US regulatory approvals necessary to close the transaction. The deal was stalled due to concerns from the Commission on Foreign Investment in the United States (CFIUS) about Chinese access to sensitive US personal data. That panel finally approved the deal in June 2018 after Genworth agreed to use a US-based, third-party service provider to manage the data of its US policyholders.

The securities industry's self-regulatory body, the Financial Industry Regulatory Authority, has confirmed the transaction can be completed. The North Carolina Department of Insurance has extended its previously granted approval through January 24, 2021. The transaction has yet to be confirmed by the Delaware Department of Insurance.

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

Given the passage of time and terms of these approvals, the parties said they need to review at the appropriate time whether re-approvals or confirmations are needed.

Genworth sells mortgage insurance and long-term care insurance.

Oceanwide is a family-owned, private, international financial holding company founded by LU Zhiqiang. Oceanwide is headquartered in Beijing, China, and spans operations in financial services, energy, technology information services, culture and media, and real estate worldwide, including in the United States. Oceanwide also has real estate investments in the US.

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