Conglomerate China Oceanwide Holdings (COH) has recently agreed to purchase
Genworth Financial in a deal that could potentially bail the insurer from a pinch. The former is shelling out $2.7 billion in cash to purchase the latter, agreeing to a 4.2% premium to the current stock price.
The takeover appears more like a bailout, the
Wall Street Journal commented. COH—in addition to the $2.7 billion purchase price—has committed $600 million to resolve Genworth’s debt which matures in just over a year, as well as $525 million to support and restructure the insurer’s U.S. life insurance business.
Genworth president and CEO Thomas J. McInerney is aware of the munificent nature of the deal and asserted that it would create “greater and more certain value” for shareholders compared to selling off its smaller operations.
Notably, while announcing the transaction, Genworth separately revealed charges of up to $625 million, which include claim reserves. The insurer, however, asserted that it would not need any further support from its Chinese buyer.
COH’s purchase of Genworth comes at a difficult period for the insurer. Genworth, the second largest mortgage insurance provider in Canada, is still reeling from a $219 million suit brought against it by investors claiming it has misled them about the profitability of its core business. The U.S.-based insurer is also being pressured by charges on its long-term-care business, rising delinquencies in Australia, low interest rates, and mortgage rule changes in Canada that call for a controversial risk sharing scheme.
Although COH’s chairman claimed that the deal was structured such that it would facilitate regulatory approval, the
Wall Street Journal hypothesizes that the deal could meet a fate similar to another previous buyout. In May, Anbang Insurance Group Co. withdrew its $1.57 billion bid for U.S. insurer Fidelity & Guaranty Life after New York regulators demanded more information on the Chinese firm’s ownership structure.
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