UPDATE July 2 with comments from Canadian regulators
UPDATE July 1 from Virginia SCC, Genworth’s domiciliary regulator
Genworth Financial is pursuing a potential sale of its 57% stake in its Canadian mortgage insurance business to pave the way for completion of its long-pending merger with China Oceanwide Holdings Group Co., Ltd., it said July 1, after failing to meet the latest merger deadline a day earlier.
Genworth characterized the Canadian regulators, who are the remaining supervisors whose okay is required for a deal approval as a clear impediment. The companies are willing to sacrifice a top performer — and pocket the proceeds to possibly pay down debt — to close the deal with its Chinese suitor.
China Oceanwide has agreed to allow Genworth to explore strategic alternatives for Genworth MI Canada Inc. because Canadian regulators have not given any guidance or information on a time frame for a merger approval yet, according to Genworth. The pricing terms of the deal have not changed.
China Oceanwide and Genworth also agreed to push back the merger deadline to Nov. 30, the 11th such waiver since the first deadline passed more than two years ago. The timeframe for the deal has the potential to extend past that date, the parties acknowledged, to complete any sale of Genworth MI Canada.
The deal for the Chinese conglomerate to acquire the U.S.’s largest long-term care insurer, was first announced in late October 2016.
The “lack of transparent feedback or guidance from Canadian regulators about their review left us no choice but to look at strategic alternatives for MI Canada that would eliminate the need for Canadian regulatory approval of the Oceanwide transaction,” Tom McInerney, president and CEO of Genworth, stated in a release July 1.
Previous statements from Genworth indicate that the Canadian government has expressed concerned around customer data privacy issues in the sale of the mortgage insurer to the Chinese company. The Richmond, Va.-based company discussed these issues in its first quarter earnings release and call about two months ago while also lamenting a lack of feedback from Canadian regulators.
Under the terms of the new agreement, if Genworth finds a buyer for MI Canada, China Oceanwide would then approve or reject the transaction. If Oceanwide thumbs down the MI suitor or its terms, both Genworth and Oceanwide both have the right to end their own deal.
One benefit of bringing the well-performing MI Canada, largest private residential mortgage insurer in Canada, to market would be using the money from the sale to pay down future debt maturities, according to McInerney.
As at March 31, 2019, Genworth MI Canda had $6.9 billion total assets and $4.1 billion total shareholders’ equity. It reported first quarter net operating income of $119 million.
He said that Genworth is in discussions with its other regulators about the potential MI Canada sale and its effect on the Oceanwide transaction, but didn’t elaborate on what that would mean in terms of already-gained approvals from various U.S. state regulators. The Committee on Foreign Investment in the United States (CFIUS) approved the deal with conditions that include nation security measures more than a year ago.
The Oceanwide transaction still needs the okay from China for currency conversion.
Oceanwide remains committed to the transaction at the original purchase price of $5.43 per share as well as the $1.5 billion contribution to Genworth, when the transaction closes, according to China Oceanwide’s chairman, LU Zhiqiang.
Genworth has invested in months of lobbying utilizing well-connected and top tier lobbyists in Canada such as Andrew Steele and Leslie Noble in attempts to get the deal cleared, but in its statement Monday it acknowledged the needle had barely moved.
The transaction with Oceanwide could potentially trigger a new review of the merger in the states.
Genworth’s domiciliary regulator, the Virginia State Corporation Commission said Monday that “it is possible that the potential disposition announced today could result in the company needing to amend or supplement its Virginia application,” because it represents a material change to the merger plan the SCC’s Bureau of Insurance approved on Jan. 11, 2019.
The regulator’s approval letter stated that it was conditioned upon the proposed transaction “being implemented precisely as described in the Amended Form A,” according to Ken Schrad, director of the Division of Information Resources for the SCC.
“There is a rigorous approval process for changes in ownership of federal financial institutions,” a Department of Finance Canada spokesperson said via email July 2. He said that the assessment of each transaction application depends on the specific facts and circumstances and added that “the examination of this (Oceanwide) transaction is still ongoing.”
The Superintendent of Financial Institutions makes a recommendation to the Minister of Finance, which makes the final decision.
Any application remains under review until the Minister of Finance either approves or denies, or the applicant withdraws the application, according to the Office of the Superintendent of Financial Institutions. OSFI has been in contact with the company in order to gather information throughout the process, its spokesman said.
There are no indications the Genworth-Oceanwide application has been withdrawn.