Genworth-China Oceanwide deal extended for 15th — and maybe last — time

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Despite having high hopes of getting the deal done by the end of the second quarter, Genworth Financial and China Oceanwide have extended the transaction's deadline for the 15th time.

But for the first time in this long-running saga, Genworth has the ability to unilaterally terminate the agreement if certain conditions aren't met by Aug. 31, including China Oceanwide having approximately $1 billion from sources in its home country to fund the acquisition of Genworth.

Hony Capital, which is a Chinese company, has previously agreed to provide up to $1.8 billion in acquisition financing. But as a second condition to the transaction, Hony, or a third party, must have arranged financing commitments of at least $1 billion from sources outside of China.

China Oceanwide said that the financing has been delayed due to the pandemic and uncertain macroeconomic conditions.

"While Genworth had previously indicated that it could raise debt and float a portion of its U.S. mortgage insurance unit, this morning's announcement demonstrates that management has decided that, with significant liabilities approaching, they must set a timetable for moving forward with 'Plan B' options," Mark Palmer, an analyst with BTIG, said in a report.

He noted that Genworth's June 29 closing price of $2.56 per share was almost 53% below the company's stock price when the acquisition was announced three-and-a-half years ago. Genworth opened after the announcement on June 30th at $2 per share and at one point during that morning set a new 52-week low at $1.87 per share.

Genworth is dealing with some near-term liabilities, including payments to insurance firm AXA, which are the result of losing a lawsuit in the United Kingdom. So far, the company has made an interim payment of $134 million, equivalent to 100 million pounds at the time of the transaction. AXA is claiming over 600 million pounds in aggregate damages.

In addition, Genworth has approximately $1 billion in maturing debt coming due in 2021.

To address those demands, Genworth is contemplating a debt offering in the near term. It's also taking steps to launch an initial public offering of 19.9% of its U.S. mortgage insurance business, subject to market conditions in the event that the China Oceanwide transaction is terminated.

Before it signed the agreement with China Oceanwide back in October 2016, Genworth was making plans to spin out its mortgage insurance business to isolate it from the troubled long-term care unit.

For its part, China Oceanwide can also unilaterally cancel the transaction as of Aug. 31 if it disagrees with any of the above steps taken by Genworth.

"We heard from our stakeholders that they would like greater assurance that the Oceanwide transaction is making progress towards closing," Tom McInerney, president and CEO of Genworth, said in a press release. "This extension and associated milestones address stakeholders' concerns and provide our board with the flexibility to execute on our strategic priorities and maximize shareholder value while we continue to work with Oceanwide to close the transaction. We continue to believe the transaction represents the best and most certain value for Genworth's shareholders."

When extension No. 14 was announced at the end of the first quarter, the parties expressed optimism that the deal would be completed by the end of May. But when Genworth released its first-quarter earnings, the company said it was looking at a June deadline for the deal's completion, in large part because of economic conditions resulting from the coronavirus.

"We have overcome many hurdles during the past three and half years and continue to persevere because of the future value of Genworth to our vision of pursuing the significant opportunities for long term care insurance in the U.S., China and the rest of Asia," Lu Zhiqiang, chairman of China Oceanwide, said in the press release. "We remain committed to securing financing for the transaction in order to close the transaction as soon as possible."

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