It's on: Genworth-China Oceanwide deal finally set to close
The long-running saga of the acquisition of Genworth Financial by China Oceanwide may reach a happy conclusion by the end of this month, as the parties did not exercise their Aug. 31 rights to terminate the deal.
"Over the past few months, [Genworth CEO] Tom [McInerney] and I have been in regular discussions with China Oceanwide with respect to their efforts to obtain financing for the transaction," James Riepe, the company's chairman, said in a press release. "Based on these discussions and the information provided by Oceanwide, we believe the funding is progressing well and that Oceanwide is working to close the transaction by Sept. 30. Therefore, the board determined not to exercise our right to terminate the merger agreement at this time."
Further details regarding the financing were not released. The terms of the deal,which was extended 15 times, state that Hony Capital, or a third party, must have arranged for financing commitments of at least $1 billion from sources outside of China. Previously, Hony, which is a Chinese company, agreed to provide up to $1.8 billion in acquisition financing to China Oceanwide to complete the transaction.
In October 2016, China Oceanwide agreedto pay $2.7 billionfor Genworth, providing a lifeline for a company whose life and long-term care lines were causing significant financial problems.
"The Aug. 31 milestone was important to both inform Genworth's ongoing review process as well as provide an important update to our shareholders ahead of the Sept. 30 deadline, particularly in light of the market disruptions driven by the global pandemic," McInerney said.
However, the press release disclosed new potential complications for the transaction. It stated that the companies are in discussion with Fannie Mae and Freddie Mac abouttheir previous approvalof the transaction. Any change in that may prevent Genworth's U.S. mortgage insurance subsidiary from providing coverage for the low down payment mortgages that the agencies purchase.
Genworth also said the North Carolina Department of Insurance granted a 90-day extension of its approval of the transaction on Aug. 11. The company has also withdrawn and refiled its Financial Industry Regulatory Authority continuing membership application due to the passage of time.
Furthermore, China Oceanwide is going back to the Delaware Department of Insurance to confirm Genworth's unit domiciled in that state may proceed under the existing approval after its financing has been finalized. It also needs to receive approval for currency conversion and transfer of funds from Chinese authorities.
In what was a very successful and highly competitive second quarter for the entire MI industry, Genworth had the largest amount of new insurance writtenat $28.4 billion.
China Oceanwide had termination rights it could exercise if it disagreed with Genworth taking certain financial measures, like those it has recently: issuing debt and preparing the U.S. MI unit foran initial public offeringof a 19.9% equity stake.
Genworth completeda $750 million private placement debt offeringon Aug. 21, with $350 million used to repay or reduce existing debt and the rest held at the MI unit's direct parent.