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Genworth Ends China Oceanwide Merger Agreement

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What You Need to Know

  • Genworth executives say both companies made good-faith efforts to complete the transaction.
  • Genworth says it still hopes to work with China Oceanwide to sell long-term care insurance in China.
  • An analyst says Genworth needs to cover $661 million in notes that mature in September.

Genworth Financial Inc. announced Tuesday that it has officially ended efforts to be acquired by China Oceanwide Holdings Group Co. Ltd.

The Richmond, Virginia-based insurer said it has terminated a merger agreement with the Beijing-based company.

China Oceanwide — a real estate developer and financial services company — has been trying to acquire Genworth for more than four years. The companies have extended the deal completion deadline 17 times. In January, the companies shifted to using a merger agreement with no expiration date.

Genworth said it has decided to end the merger agreement, rather than sticking with the open-ended agreement, to simplify efforts to carry out the company’s strategic plan. Part of the plan involves selling a stake in a large mortgage insurance subsidiary to investors, through a partial initial public offering.

James Riepe, Genworth’s chairman, said the company’s board decided greater clarity about the company’s future is needed to maximize shareholder value.

The Companies

General Electric Company created Genworth in 2004, by putting its insurance operations in Genworth and selling stock in Genworth to the public, through a partial IPO and other transactions.

Genworth was once a large issuer of mortgage insurance, life insurance and annuities, and a dominant player in the market for stand-alone long-term care insurance (LTCI).

Low interest rates and bad assumptions about LTCI policyholder behavior hurt the LTCI operations.

Genworth has suspended sales of life insurance and annuities and appears to be selling little or no new LTCI coverage. It continues to have large amounts of LTCI business on its books, and it continues to be an active player in the U.S. mortgage insurance market.

China Oceanwide, the would-be buyer, is a company controlled by Lu Zhiqiang. The company flourished  in the early 2010s, but it ran into trouble when China began clamping down on real estate developers, in an effort to prevent those companies from taking on too much risk.

Genworth began de-emphasizing efforts to complete the China Oceanwide deal in January. Genworth said that China Oceanwide was having trouble coming up with the financing to close on the deal, partly because of the effects of the COVID-19 pandemic on negotiations, and partly because of uncertainty about how the United States might approach regulation of Chinese companies.

Tom McInerney, Genworth’s CEO, said both Genworth and China Oceanwide made good faith efforts to complete the deal.

“I would like to thank Chairman Lu for his commitment and partnership throughout this process,” McInerney said, “While we believe it is necessary and appropriate at this stage to terminate the transaction, Genworth continues to share Chairman Lu’s vision of bringing long-term care solutions to the aging population in China. Both parties believe there are significant, compelling opportunities to address critical societal needs outside of the U.S.”

Genworth’s Future

Genworth has $661 million in notes maturing in September, according to Catherine Seifert, an analyst with CFRA Research. It has talked about raising cash by carrying out the partial IPO of the mortgage insurance business.

The firm’s description of its reason for terminating the China Oceanwide deal agreement raises the possibility that Genworth may have come up with an additional strategy for raising cash.

Genworth says in a “cautionary note regarding forward-looking statements” that the transactions it’s pursuing to address its near-term liabilities and financial obligations “may include additional debt financing” as well as the mortgage insurance IPO.

Seifert writes in a commentary that she expected to see the agreement terminated.

If Genworth then proceeds to carry out the partial mortgage insurance IPO, that will leave Genworth “with primarily a long-term care insurance book of business that will likely have to boost reserves,” Seifert writes.