Genworth Financial and China Oceanwide Holdings Group have revealed uncertainty around the completion of their long-delayed merger agreement, leading mortgage insurer Genworth to focus on its contingency plan.
The proposed acquisition of control by Oceanwide of Genworth’s New York-based insurance company, Genworth Life Insurance Company of New York, had initially been set for June 30th, 2019.
However, this date was pushed back by five months in order to give Genworth time to explore the sale of its Canadian business, Genworth MI Canada Inc.
Some months later, in March of 2020, the companies announced that the merger could be further delayed due to operational disruptions arising from the COVID-19 pandemic, before a deadline of no later than September 30th, 2020 was announced at the end of June.
After confirming the new merger date, it was announced that Oceanwide had reached an agreement with Hony Capital on the key commercial terms and conditions of its $1.8 billion offshore financing plan to complete the acquisition of Genworth.
Then, in early December, the pair received confirmation of the acceptance of filing from the National Development and Reform Commission (NDRC) in China, seemingly taking the merger closer to completion.
Now, in an update on the pending merger transaction, the pair have stated that in light of uncertainty around both the completion and timing of the remaining steps required to close the deal, they decided not to extend the current December 31st, 2020 “end date” under the arrangement.
Oceanwide has indicated that the factors contributing to the delay since the two firms agreed to their most recent extension of the merger agreement on November 30th, 2020 were: the completion of the Hony Capital financing terms; and the COVID-19 pandemic and associated restrictions.
Nevertheless, the merger agreement does remain in effect, although either company is able to end the agreement at any time. Oceanwide has expressed that it will continue to work towards finalising the deal, while Genworth has said that it remains open to completing the merger if Oceanwide completes the required steps.
James Riepe, non-executive chairman of the Genworth Board, commented: “When we considered our most recent extensions of the merger agreement, Genworth’s Board of Directors believed we were on a path to a near-term closing based on the information we were provided. Given the most recent update, we do not believe a closing can occur in the near term. Thus, the management team will fully focus its efforts on executing our contingency plan. We appreciate the continuing patience of our shareholders, employees and other stakeholders as we continue to pursue steps that will maximize Genworth’s value.”
Genworth’s contingency plan includes a potential partial IPO of its U.S. Mortgage Insurance business, designed to meet its near-term liabilities of approximately $1 billion of debt due in 2021. An IPO of this business, says Genworth, will be subject to market conditions and also the satisfaction of various conditions and approvals.
Additionally, the contingency plan addresses the need to further align Genworth’s expense structure with its business activities. According to Genworth, these steps expand on the progress already made under its contingency plan, which includes the sale of its Canadian mortgage insurance business in 2019, and the completion of a $750 million debt offering at the U.S. mortgage insurance holding company level in August of 2020.
In light of these actions and other measures implemented, Genworth states that it has reduced holding company debt over time and built a solid position of roughly $1 billion in cash and liquid assets as of December 31st, 2020.
Tom McInerney, Genworth president and Chief Executive Officer (CEO), said: “While we are disappointed that we could not close the transaction by the end of 2020, the parties retain the ability to ultimately complete the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing, and if the transaction is still in the best interests of Genworth at that time. At the same time, we are moving forward with our contingency plan to meet our near-term obligations and maximize long-term value, which we believe is the best approach for our shareholders.”
Lu Zhiqiang, chairman of Oceanwide, Chairman of Oceanwide, added: “We believe the value of the transaction is significant for both parties’ stakeholders, and are continuing to work towards completing the transaction with Genworth.”