China Oceanwide Holdings Group Co. agreed to buy Genworth Financial Inc. for $2.7 billion in cash, pledging to help the U.S. firm manage its debt and strengthen life insurance units after it was hurt by higher-than-expected losses tied to long-term care coverage.
A China Oceanwide investment platform will pay $5.43 per share, the companies said Sunday in a statement. That’s 4.2 percent more than Genworth’s closing price of $5.21 Friday. The buyer also promised to provide $600 million to Genworth to address debt maturing in 2018, as well as $525 million to strengthen the life insurance businesses.
Genworth Chief Executive Officer Tom McInerney has been selling assets to ensure the insurer has sufficient liquidity after it was hit by losses on its long-term care coverage, which pays for home-health aides and nursing home stays, and as low interest rates crimp returns. China Oceanwide plans to let Richmond, Virginia-based Genworth operate as a standalone company after the takeover with senior management still in place, according to the statement.
“Genworth is an established leader in both mortgage insurance and long-term care insurance, which are markets that present significant long-term growth opportunities,” China Oceanwide Chairman Lu Zhiqiang said in the statement. “We are providing crucial financial support to Genworth’s efforts to restructure its U.S. life insurance businesses.”
China Oceanwide spans real estate, energy and finance. It was founded in 1985 by Lu, who is a Communist Party secretary, as well as a member of the standing committee of the 12th Chinese People’s Political Consultative Conference, according to the company’s website.
Lu is also one of the founding shareholders of China Minsheng Banking Corp., and earlier this year boosted his stake in the Chinese lender through China Oceanwide. Lu’s purchases of about $1.1 billion in Minsheng’s stock in July reflected his confidence in the Beijing-based lender, he said at the time. He dismissed speculation at that time that his moves may signal a looming tussle for ownership with the bank’s biggest shareholder, Anbang Insurance Group Co.
Genworth isn’t likely to see higher bids because of the struggles at its long-term care operation and China Oceanwide’s agreement to add more capital, according to BTIG LLC analyst Mark Palmer.
“GNW’s rationale for agreeing to sell itself likely was rooted in the challenges faced by its LTC unit, as the company in conjunction with the sale announcement disclosed that as a result of its annual review of its LTC claim reserves it would increase such reserves,” Palmer wrote in a note to clients.