Back in October 2016, Genworth agreed to sell itself to China Oceanwide for $2.7 billion in cash.
China Oceanwide Holdings Group’s bid for Genworth Financial Inc.(GNW) may fall through. The deal, now four years old, is one of the longest in the world.
Genworth, an insurer based in Richmond, Virginia, agreed to sell itself to the Chinese private conglomerate for $2.7bn in cash in October 2016. But on Monday, Genworth said the deadline for completing the deal with Beijing-based China Oceanwide had not been extended. That deadline has already been extended 16 times.
While the two companies did not cancel the merger agreement, the move suggests the long-running marriage may not be consummated.
Genworth said on Monday that one of the obstacles to the completion of the deal was financing issues, some of which was provided by Chinese private equity firm Hony Capital. A Hony representative declined to comment.
Genworth said COVID-19 and related restrictions had also delayed closing the deal. Genworth’s New York-listed shares fell 27 per cent in early trading on Monday, reducing its market value to $1.4bn.
The deal, which would have given Genworth a much-needed $1.5bn capital injection, was struck at a time when many Chinese conglomerates were flush with cash and were buying assets around the world at high prices. The deal has already overcome numerous regulatory hurdles, winning approval from insurance regulators, Chinese authorities and the Committee on Foreign Investment in the U.S. The Committee on Foreign Investment in the US reviews cross-border deals with national security implications.
Due to repeated delays in closing the deal, some regulatory approvals had run out of time and had to be reissued.
At Genworth’s annual shareholder meeting last month, CHIEF Executive Thomas McInerney said that Hong Kong’s quarantine requirements for travelers and the financial center’s social distancing measures, which prohibit gatherings of more than two people, were making it difficult for Oceanwide to finalize and execute its financing plans with Hony.
Genworth had previously said oceanwide and Hony needed to hold face-to-face discussions to finalize the terms of the deal’s debt financing of up to $1.8 billion.
McInerney didn’t comment Monday. The company will hold an investor conference call on Tuesday.
Hong Kong, a major financial centre for Chinese companies to raise capital, tightened travel restrictions in December after a rise in COVID-19 cases. Since late December, Hong Kong has imposed a 21-day mandatory quarantine on people arriving from most countries, which has hampered many international travelers.
Both companies have said they still want to close the deal if they can, but that either party has the right to terminate the merger agreement at any time.
With both companies struggling to close deals over the past year, Wall Street analysts said they believed Genworth had the financial resources to continue operating the business without a buyer. Analysts have said in recent months that Genworth has a strong mortgage insurance business that generates revenue and profits, and that the company has enough cash on hand to meet debt maturing in 2021.
But the collapse of the deal would mark the end of Genworth’s era as a leader in the long-term care insurance industry. Genworth popularized the line in the 1990s and 2000s, and for many years it was the number one seller of such policies.
A Construction site for China Oceanwide In Los Angeles in 2016, when Chinese conglomerates were buying assets around the world.
These policies typically cover home care, nursing homes and other expenses for those who lose their ability to care for themselves. Millions of Americans hold such policies that were once sold by a group of well-known insurance companies.
But insurers miscalculate the costs they will bear, including how long people will be paid out and how many insured people will claim. Ultra-low interest rates in the U.S. since 2008 have also hurt these products badly, as insurers invest their annual premiums before they need to pay out. Since 2007, insurers have increased their reserves and set aside more than $10bn in earnings to reflect expected increases in claims.
Many insurers have won regulatory approval to pass on double-digit or triple-digit rate increases to consumers, angering their customer base. Most companies have stopped selling new policies.
Few companies have been hit as hard as Genworth.
Long-held concerns about whether insurers’ reserves will be sufficient to cover long-term care payments that could last decades will come to the fore if no deal is struck. Genworth has about $30 billion in such reserves, according to a December report from Moody’s Investors Service, making it the largest long-term care policy provider in the U.S. life insurance industry.
Genworth said On Monday that it intends to manage the U.S. life insurers separately and has no plans to inject capital into them in the future without a deal with China’s Oceanbroad.
The company also said it was focusing on implementing a contingency plan that could include an initial public offering of its U.S. mortgage insurance business. Genworth said this and other measures would help improve the company’s financial position and said it had enough cash and assets to meet debt payments due next month.
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