$2.7B Genworth acquisition is on hold

Deal is frozen; Genworth looks to possible IPO of mortgage insurance business

Published January 4, 2021 by Sydney Lake

UPDATED JAN. 5

Henrico County-based Genworth Financial Inc.’s planned $2.7 billion acquisition by China-based Oceanwide Holdings Group Co. Ltd. has been frozen.

In late November, the companies announced that Oceanwide’s acquisition of the Fortune 500 insurance company had been reapproved by China’s National Development and Reform Commission, and the acquisition, which has been frequently postponed since 2016, was previously delayed until Dec. 31, 2020. However, on Monday, Jan. 4, with the acquisition still not finalized, both companies said that “the merger agreement remains in effect,” although the deadline was not extended.

“When we considered our most recent extensions of the merger agreement, Genworth’s board of directors believed we were on a path to a near-term closing based on the information we were provided,” James Riepe, non-executive chairman of Genwort’s board, said in a statement. “Given the most recent update, we do not believe a closing can occur in the near term.”

But while the merger finalization remains in question, Genworth also announced Monday it would focus on its contingency plan — including a potential partial initial public offering (IPO) of the company’s mortgage insurance business. This would help the business meet its $1 billion in debt obligations due this year.

During a special shareholders meeting on Tuesday morning hosted by Genworth CEO Tom McInerney, he said that the company is planning the IPO for the first half of 2021.

“We have been working on this plan throughout 2020 while simultaneously working with Oceanwide to close this transaction,” McInerney said during the Tuesday call. “Given that we did not extend the merger agreement deadline, Genworth can terminate the transaction at any time if we think that is better from a shareholder value perspective.”

Although further details regarding the timeline and terms for the IPO were not shared during the Tuesday call, the company has an “increased focus on the contingency plan,” McInerney said. Additional details will be shared “as soon as possible.” Genworth will hold its fourth quarter 2020 earnings call in early February.

In a statement released Monday, McInerney said, “While we are disappointed that we could not close the transaction by the end of 2020, 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. At the same time, we are moving forward with our contingency plan to meet our near-term obligations and maximize long-term value, which we believe is the best approach for our shareholders.”

According to company statements, financing and COVID-19-related restrictions have been to blame for the acquisition, which was first announced in 2016. In June, the Virginia State Corporation Commission’s Bureau of Insurance reapproved the merger, and the companies agreed to a 15th waiver and agreement to each party’s right to terminate the proposed agreement.

On Oct. 1, 2020, Genworth announced that Oceanwide had reached an agreement with Chinese private equity firm Hony Capital on the commercial terms and conditions of its $1.8 billion offshore financing plan to complete its acquisition of Genworth. As of the companies’ Monday announcement, however, finalization of the Hony Capital financing terms was still holding up the merger.

“We believe that closing the Oceanwide transaction will deliver the greatest value for Genworth shareholders and we’ve done everything we can to make that outcome a reality,” McInerney said during the Tuesday call. “We are therefore leaving open the possibility of ultimately closing 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 interest of Genworth at that time.”

Also on Oct. 1, 2020, the companies agreed to a 16th waiver and agreement of each party’s right to terminate their previously announced merger agreement. It extended the previous deadline of Sept. 30 to no later than Nov. 30. Oceanwide, however, had not reached a final agreement on all terms and conditions due to pandemic-related challenges including travel restrictions and mandatory quarantine requirements.

“We believe the value of the transaction is significant for both parties’ stakeholders, and are continuing to work towards completing the transaction with Genworth,” Oceanwide Chairman Lu Zhiqiang said in a statement.