Genworth Financial‘s ability to chart its own course may depend on its ability to persuade insurance regulators in Delaware to approve an acquisition offer from China Oceanwide Holdings Group Co. Ltd.
Securities analysts asked about Delaware insurance regulators several times today during a conference call Genworth held to discuss the offer.
China Oceanwide, a Beijing-based real estate and financial services formed organized in 1985 by Lu Zhiqiang, has offered to pay Genworth’s shareholders $5.43 per share for their Genworth stock.
China Oceanwide has also promised to provide $525 million that Genworth can use to shore up two big U.S. life insurance company subsidiaries, Genworth Life Insurance Co., which is known as GLIC (pronounced “Glick”) and Genworth Life and Annuity Insurance Co., which is known as GLAIC (pronounced “Glake”).
China Oceanwide would provide another $600 million that the company could use to refinance or retire debt securities that are set to mature in 2018.
The deal would give the company a total market value of $2.7 billion. That compares with a total market capitalization value, or stock-based value, of about $2.3 billion Friday, according to Yahoo Finance, and a peak market capitalization value of more than $15 billion in 2007.
Genworth has been trying to change its corporate structure to separate its big long-term care insurance unit, which has been hit hard by low interest rates and problems with the assumptions used to set product prices, in order to “isolate the long-term care insurance business from the parts of the business that write life and annuity products.
The securities analysts asked several times, in several different ways, whether Delaware regulators will really let Genworth carve out financial responsibility for the long-term care insurance business from the rest of the company.
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Why the Genworth-China Oceanwide deal could work
One analyst pointedly asked Genworth President and CEO Thomas McInerney today about the deal breakup fee, or how much either Genworth or China Oceanwide would have to pay the other company if regulators rejected the deal.
McInerney said, several times, that Genworth has been talking to regulators and has tried to maximize the likelihood that regulators will approve the deal.
But “we’ve looked at many different options,” McInerney said. ”We do have alternatives.”
Genworth could reinsure parts of its business, and it could pursue asset sales, McInerney said.
McInerney hinted that other suitors have offered lower prices for Genworth, or deal arrangements financed partly with the acquirer’s stock.
The all-cash China Oceanwide deal “creates greater and more certain value for shareholders,” McInerney said.
Genworth has been trying to change the relationship of its GLIC and GLAIC units.
GLIC is the Genworth unit that writes stand-alone long-term care insurance and has problems with underpriced long-term care insurance business.
GLAIC is the unit that writes life insurance and annuity products.
Today, GLAIC is a daughter of GLIC. If GLAIC does well, it has to start by sending dividends to GLIC, the struggling long-term care insurance issuer, rather than to the parent company.