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Genworth and China Oceanwide Sign $2.7B Acquisition Deal

Genworth Financial, Inc. GNW recently announced that it has inked a definitive agreement with China Oceanwide Holdings Group Co., Ltd. to be acquired by the latter for $2.7 billion or $5.43 per share in cash. The transaction will be executed via Asia Pacific Global Capital Co. Ltd., one of China Oceanwide's investment platforms. The deal is expected to culminate by the middle of 2017 upon fulfillment of closing conditions.

Details of the Deal

Apart from the purchase consideration, China Oceanwide has agreed to contribute $600 million of cash to Genworth. This amount will help the latter meet the debt maturing obligations in 2018. Genworth is also set to receive $525 million of cash to the U.S. life insurance businesses from China Oceanwide. This contribution is in addition to $175 million of cash that Genworth Holdings Inc. is expected to pay to the U.S. life insurance business.

Upon completion of the deal, Genworth will become a subsidiary of China Oceanwide. However, the company’s existing senior management team will continue to operate from its current headquarters in Richmond, VA. Genworth also expects to maintain its existing portfolio of businesses, including its MI businesses in Australia and Canada.

Transaction Rationale

Beijing, China-based China Oceanwide's operations include financial services, energy, culture and media, and real estate assets globally, including in the United States. We believe that Genworth’s acquisition will enhance value for its customers through better services than the company currently provides on the basis of its existing business plan or other strategic alternatives. Also, the President & CEO of Genworth, Tom McInerney stated, “They recognize the strength of our mortgage insurance platform and the importance of long-term care insurance in addressing an aging population. The capital commitment from China Oceanwide will strengthen our business and increase the likelihood of obtaining regulatory approval.”

China Oceanwide views Genworth an ace player in mortgage insurance and long-term care insurance markets that offers significant growth opportunities for the future. Given that the China-based insurer is intensifying its focus to brace up its mortgage insurance and long-term care businesses, the addition of Genworth to its portfolio will expand as well as strengthen its international operations.

Lu Zhiqiang, Chairman of China Oceanwide, commented that “In acquiring Genworth and contributing $1.1 billion of additional capital, we are providing crucial financial support to Genworth's efforts to restructure its U.S. life insurance businesses by unstacking Genworth Life and Annuity Insurance Company (GLAIC) from under Genworth Life Insurance Company (GLIC) and address its 2018 debt maturity. In order to close the transaction and achieve these objectives, we have structured the transaction with the intention of increasing the likelihood of obtaining regulatory approval."

Genworth is expected to remain committed toward its key financial priorities of strengthening the balance sheet and stabilizing and improving ratings over time, particularly in its U.S. MI business. The insurer will also remain focused on its key operational priorities, executing its multi-year LTC rate action plan, which is essential to stabilizing the financial position of its legacy LTC business.




Zacks Rank and Stocks to Consider

Genworth carries Zacks Rank #3 (Hold). Some better-ranked life insurers are Universal American Corp UAM, Lincoln National Corp. LNC and Reinsurance Group of America Inc. RGA.

Universal American, a provider of health insurance and managed care products and services to Medicare and Medicaid customers in the United States, has witnessed the Zacks Consensus Estimate decline by 50% for 2016 but inch up by a cent for 2017. The insurer sports Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Lincoln National, a diversified life insurance and investment management company diversified life insurance and investment management company, has witnessed the Zacks Consensus Estimate move up by 0.3% for 2016 and 0.9% for 2017. The insurer carries Zacks Rank #2 (Buy).

Reinsurance Group, a traditional individual and group life, asset-intensive, critical illness and financial reinsurance, has witnessed the Zacks Consensus Estimate move up by 0.5% for 2016 but down 0.2% for 2017. The insurer carries Zacks Rank #2.

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