Genworth looking to sell Canadian MI business to save its own deal

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Genworth Financial is marketing its stake in Genworth MI Canada in a possible last-ditch effort to save the long-delayed proposed acquisition by China Oceanwide.

Its sale of the nearly 57% ownership interest in the Canadian business was announced as part of the latest extension in the deadline to consummate the deal. The most recent deadline expired on June 30; the latest extension is through Nov. 30.

The remaining shares of Genworth MI Canada are traded on the Toronto Stock Exchange.

Over one year after receiving approval by the Committee on Foreign Investment in the U.S., the lack of Canadian regulatory approval stood among the items still holding back the transaction.

Genworth

“The transaction with Oceanwide has taken longer than any of us anticipated and we owe it to our stockholders to close it as soon as possible. However, an additional extension may be required to complete the potential disposition of MI Canada,” Genworth Financial President and CEO Tom McInerney said in a press release. “In the meantime, we are in discussions with other regulators about the disposition of MI Canada and its impact on the overall Oceanwide transaction.”

If a buyer is found for Genworth MI Canada, China Oceanwide must accept or reject the terms. Either Genworth or China Oceanwide can terminate their merger agreement if the latter rejects the Canadian business’ sale.

But if China Oceanwide approves of the Genworth MI Canada sale, the primary transaction will close concurrently with that sale or promptly thereafter.

“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,” said McInerney. “Another potential benefit of selling all or a portion of MI Canada would be the opportunity to use the proceeds to satisfy future debt maturities.”

Its stake in the Canadian business contributed $41 million to Genworth Financial’s first-quarter adjusted operating income, down from $49 million one year prior. The U.S. MI business reported adjusted operating income of $124 million and the parent company’s share of the Australian MI business added another $14 million. But losses in other areas including the corporate segment and long-term care insurance reduced total adjusted operating income for the first quarter to $121 million.

Genworth Financial reached agreement with China Oceanwide in October 2016 for this transaction. The latest delay is the 11th, which included several holds while working on CFIUS approval.

“Genworth Canada remains focused on its strategic priorities and meeting the needs of all its stakeholders”, President and CEO Stuart Levings said in its own press release. “Our board of directors and the special committee of independent directors, which was established in 2016 in connection with the Genworth Financial-Oceanwide transaction, will continue to monitor the status of that transaction and, as necessary, engage with Genworth Financial and other parties regarding the potential disposition of its interest in the company or other strategic alternatives.”

The transaction calls for China Oceanwide to pay $5.43 per share in cash for Genworth Financial. On July 1, Genworth opened at $3.90 per share, after closing at $3.71 per share on June 28.

“Oceanwide remains committed to the transaction at the original purchase price of $5.43 per share,” Lu Zhiqiang, its chairman, said in the Genworth Financial press release. “We also remain committed to the $1.5 billion contribution to Genworth, following the consummation of the transaction. We look forward to closing the transaction as soon as possible so that we can bring certainty to Genworth stockholders and begin to realize the benefits of our merger.”

Chinese officials still need to clear the transaction for currency conversion purposes.

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