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Genworth's Merger with Oceanwide Pushed Back Once Again

Sapna Bagaria

Genworth Financial, Inc. GNW and China Oceanwide Holdings Group Co. Ltd (Oceanwide) have once again delayed their merger to no later than Mar 31, 2020. The merger has been pushed back for the 13th time.  

The most recent postponement of the merger deal comes on the back of regulatory approval required after the disposition of Genworth Canada. Since the merger agreement has been delayed a dozen times, some of the approvals like that from the New York Department of Financial Services has expired. Fresh regulatory approval is required.

Government backed mortgage agencies like Fannie Mae and Freddie Mac will also need to reapprove the Oceanwide transaction. Other regulators are currently reviewing the supplemental information to determine whether the Genworth Canada sale has any impact on their existing approvals.

The 13th waiver also provides termination rights to the extent that regulators impose materially adverse conditions on the deal. Both the companies have the right to walk away from the deal if they fail to pass regulatory approvals. 

None of the parties, however, will be liable for any penalty if the deal breaks.

Since the merger is between two countries, the United States and China, the regulatory approval process has stretched.  Following the receipt of all final Genworth regulatory approvals, Oceanwide will also need to receive clearance from China's State Administration of Foreign Exchange for the currency conversion and transfer of funds.

The merger was announced in October 2016. As time passes and the transaction becomes uncertain, the execution risk associated with refinancing its existing debt ladder with alternative arrangements becomes more concerning. Genworth faces meaningful debt maturities over the next five years from 2020-2025.

Some stakeholders are of the opinion that the deal may fall apart because of the frictions between the United States and China due to trade tariffs, greater scrutiny of Chinese regulators on business acquisition in foreign countries and the weak financial position of Oceanwide Holdings.

The merger would have provided a strong financial support to Genworth, whose life insurance business has been struggling due to low interest rates.   

In September 2019, A.M.Best downgraded the ratings of the company’s Genworth Life and Annuity Insurance unit due to its weak operational results as well as uncertainty revolving future reserve and other write-downs, which weigh on future earnings expectations. Further, absolute and risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), has been deteriorating over the past few years, attributable to weak operating performance.

Genworth Financial is focused on fully restructuring the U.S. Life business to offset challenges of the legacy long-term care business. Year to date, the stock has fallen 9.9% against the industry’s growth of 29.5%.

 

Genworth Financial carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are American Equity Investment Life Holding Company AEL, Primerica, Inc. PRI and Radian Group Inc. RDN.

While America Equity sports a Zacks Rank #1 (Strong Buy), Primerica and Radian Group carry a Zacks Rank #2 (Buy).  American Equity, Primerica and Radian Group have surpassed earnings estimates in the last reported quarter by 159.2%,  5.61% and 12.5%, respectively.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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