China Oceanwide buying Genworth Financial for $2.7 billion

Private mortgage insurance is booming right now, and one of China’s largest companies wants in.

China Oceanwide Holdings Group announced Monday that it plans to buy Genworth Financial, one of the U.S.’s largest mortgage insurers, for $2.7 billion.

The deal comes as recent reports show that in the second quarter of this year, mortgage insurance from private insurers topped the market share of the Federal Housing Administration for the first time since the first quarter of 2015.

Additionally, new insurance written by private mortgage insurers jumped 56% in the second quarter to $71.5 billion, which represents the highest quarterly volume since the first quarter of 2008.

It’s that kind of growth that drew China Oceanwide to the acquisition of Genworth.

The deal will see China Oceanwide acquire all of Genworth’s outstanding shares of for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash.

The acquisition will be completed through Asia Pacific Global Capital Co., one of China Oceanwide’s investment platforms.

As part of the deal, the companies said that China Oceanwide plans to contribute $600 million of cash to Genworth to address the company’s debt maturing in 2018, on or before its maturity, as well as $525 million of cash to the U.S. life insurance businesses.

According to the companies, this contribution is in addition to $175 million of cash previously committed by Genworth Holdings to the U.S. life insurance businesses.

Separately, Genworth also announced Monday preliminary charges unrelated to this transaction of $535 to $625 million after-tax associated with long-term care insurance claim reserves and taxes.

Genworth said that the China Oceanwide deal is expected to “mitigate the negative impact” of these charges on Genworth’s financial flexibility and facilitate its ability to complete its previously announced U.S. life insurance restructuring plan.

“Genworth believes this transaction is the best strategic alternative to maximize stockholder value,” the company said in the release.

“The China Oceanwide transaction is the result of an active and extensive review process conducted over the past two years under the supervision of the Board and with guidance from external financial and legal advisors,” James Riepe, non-executive chairman of the Genworth Board of Directors, said. “The Board is confident that the sale of the company to China Oceanwide is the best path forward for Genworth’s stockholders.”

The transaction is subject to approval by Genworth’s stockholders as well as other closing conditions, including the receipt of required regulatory approvals.

If the deal is approved, Genworth will operate a standalone subsidiary of China Oceanwide with Genworth’s senior management team contining to lead the business from its current headquarters in Richmond, Virginia.

Genworth said that intends to maintain its existing portfolio of businesses, including its MI businesses in Australia and Canada. Genworth’s day-to-day operations are not expected to change as a result of this transaction, the company said.

As the Wall Street Journal reported Monday, China Oceanwide is one of the largest companies and it is controlled by one of China’s wealthiest families.

The company, which began modestly in 1985, has grown into an international company with holdings in China, the U.S. and beyond.

From the Wall Street Journal:

China Oceanwide, founded in 1985, has grown from a local property developer in eastern China into a nationwide conglomerate with investments in banking, insurance and technology.

The company has been an aggressive investor in U.S. commercial real estate, putting money into deals from Hawaii to New York. It has been particularly active in California, where Oceanwide is putting the finishing touches on a downtown Los Angeles mixed-use complex called Oceanwide Plaza and laid plans to build the second-tallest tower in San Francisco, a Norman Foster-designed 910-foot office building. Oceanwide’s Mr. Lu has also amassed an unusually large collection of mansions in the Silicon Valley town of Atherton and a $41 million ranch in Sonoma County that can hold a winery.

China Oceanwide was a founding investor of a big Chinese lender, China Minsheng Banking Corp., in which it owns a 4.6% stake. China Oceanwide controls a Shenzhen-based property-and-casualty insurer and a domestic insurance brokerage business. It also owns a big stake of the company that controls Lenovo Group Ltd., the world’s biggest personal-computer maker, whose founder is a close friend of Mr. Lu.

According to information provided by the company, businesses controlled by China Oceanwide have more than 10,000 employees globally.

“Genworth is an established leader in both mortgage insurance and long term care insurance, which are markets that present significant long-term growth opportunities,” said Lu Zhiqiang, chairman of China Oceanwide.

“We are impressed by Genworth’s purpose and its focus on helping people manage the financial challenges of aging as well as achieving the dream of homeownership,” Lu added.

“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 from under Genworth Life Insurance Company and address its 2018 debt maturity,” Lu continued. “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.”

If the deal is approved, Genworth plans to continue focusing on its “key” financial priorities, including “strengthening the balance sheet and stabilizing and improving ratings over time,” particularly in its MI business.

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