A big asset manager has agreed to pay about $1.8 billion for Genworth Financial Inc.’s 56.9% stake in the Genworth MI Canada Inc. mortgage insurance business, Genworth announced today.
The would-be buyer, Brookfield Business Partners L.P., hopes to close on the deal by Dec. 31, Genworth said.
If Brookfield and Genworth fail to get the regulatory approvals they need to complete the deal by Oct. 31, then Brookfield will provide $850 million in “bridge financing,” or temporary financing, Genworth said.
The deal is subject to approval by Canada’s minister of finance.
Brookfield Business Partners said in its deal announcement that it’s not currently making an offer for the Genworth MI Canada shares owned by parties other than Genworth.
“Brookfield Business Partners may in the future consider the appropriateness of such an offer after discussion with Genworth Canada’s shareholders and other stakeholders,” Brookfield Business Partners said.
The Other Deal
The managers of Genworth have been trying to sell Genworth to China Oceanwide Holdings Group Co. Ltd. of Beijing since 2016. For Genworth, one obstacle to completing the China Oceanwide deal has been getting permission from regulators in Canada to sell Genworth MI Canada to China Oceanwide.
Selling Genworth MI Canada could help Genworth move ahead with the China Oceanwide deal, Genworth said.
Even if the China Oceanwide deal falls through, cash from the Brookfield deal could increase Genworth’s overall financial flexibility, Genworth said.
Genworth was once a large player in the U.S. life and annuity markets, and it continues to sell some long-term care insurance (LTCI). It continues to have large blocks of life, annuity and LTCI business.
The company is still a major mortgage insurance issuer in the United States, Australia and Canada. Genworth says it’s the largest commercial residential mortgage insurance provider in Canada.
Brookfield Business Partners is a publicly traded limited partnership based in Toronto.
Brookfield Asset Management — a large, Toronto-based alternative asset manager — sold a stake in Brookfield Business Partners to the public in 2016. Brookfield Asset Management ended 2018 owning 68% of Brookfield Business Partners, according to an annual report Brookfield Asset Management filed with the U.S. Securities and Exchange Commission.
Brookfield Business Partners said it can pay for the Genworth MI Canada deal using its own cash.
Tom McInerney, Genworth’s president, said in a statement that Genworth was pleased to find such a high-caliber buyer for Genworth’s interest in Genworth Canada.
“We look forward to working with Brookfield Business Partners through the sale process and required regulatory approvals and, ultimately, moving forward with our long-awaited closing of our merger with Oceanwide,” McInerney said.
Lu Zhiqiang, chairman of China Oceanwide, also noted the high quality of the buyer and said his company thinks Genworth is getting a good price for the mortgage insurance unit. “We share Genworth’s commitment to bringing this process to a successful conclusion and closing the transaction as soon as possible,” Lu said.
David Nowak, the managing partner at Brookfield Business Partners, said his company sees Genworth Canada as a high-quality leader in the mortgage insurance sector.
In Canada, “Genworth is an industry-leading business that generates strong, consistent earnings and operates in a sector with high barriers to entry,” Nowak said. “We look forward to partnering with management to support its ongoing success, drawing on our expertise in insurance and residential real estate.”
The View From Wall Street
Catherine Seifert, a securities analyst at CFRA Research, says she believes completion of the China Oceanwide-Genworth deal faces hurdles other than the Canadian regulatory approval delays. Genworth’s “financial position could grow more tenuous if interest rates fall sharply,” Seifert writes.
— Read LTCI Policyholders’ Grip Is Loosening: Genworth, on ThinkAdvisor.