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Genworth (GNW) to Divest Genworth Canada for $1.8 Billion

Zacks Equity Research

Genworth Financial, Inc. GNW has agreed to divest 57% stake of Genworth MI Canada Inc. to Brookfield Business Partners L.P. BBU for $1.8 billion. Shares of Genworth gained 15.8% following the announcement. This divestment marks a step forward toward closure of Genworth’s takeover by China Oceanwide Holdings Group Co., Ltd. announced in 2016.

Per the agreement, Brookfield Business Partners will take over 48.9 million shares of Genworth Canada. The divestment is expected to close in the second half of 2019, subject to fulfillment of closing conditions including approval of the Minister of Finance (Canada).

Brookfield Business Partners will also provide Genworth Financial a bridge loan of up to $850 million that is likely to be repaid from the proceeds of the sale of its interest in Genworth Canada. The acquirer will fund the transaction from its present liquidity.

Canada Mortgage Insurance products comprise primary flow and bulk mortgage insurance. The company entered the Canadian mortgage market in 1995 and operates in every province and territory. It is currently the leading private mortgage insurer in the Canadian market. Genworth Canada has a solid record of generating consistent earnings and attractive returns on capital. Genworth expects the divestment of Genworth Canada to enhance its financial flexibility.

Tom McInerney, president and CEO of Genworth earlier stated “MI Canada is one of our top-performing businesses. However, 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.”

The Zacks Rank #3 (Hold) insurer is intensifying its focus on its mortgage insurance and long-term care businesses as well as enhancing financial flexibility and strength. To that end, in 2015, Genworth divested 4% equity stake in its Mortgage Insurance Australia and sold off the lifestyle protection insurance business to AXA. Genworth Life and Annuity Insurance Company sold some blocks of term life insurance to Protective Life Insurance Company. Genworth also completed the sale of the European mortgage insurance business to AmTrust Financial Services for net proceeds of about $50 million in May 2016. With this, the company exited its European business operations.

Shares of Genworth have lost 4.3% against its industry’s increase of 9.2%. The deadline for the Genworth Financial and China Oceanwide Holdings Group merger has been extended to not later than Dec 31, 2019 with Genworth Financial agreeing to the twelfth waiver.


Stocks to Consider

Some better-ranked stocks from the insurance industry are Health Insurance Innovations HIIQ and Primerica PRI. Each of them carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Health Insurance Innovations operates as a cloud-based technology platform and distributor of individual and family health insurance plans, and supplemental products in the United States. The company delivered 82.50% positive earnings surprise in the last reported quarter.

Primerica provides financial products to middle income households in the United States and Canada. The company delivered 3.27% positive earnings surprise in the last reported quarter.

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