Genworth, China Oceanwide Chart Path to Regulatory Approval of Deal
October 25 2016 - 1:00AM
Dow Jones News
Genworth Financial Inc.'s proposed buyout by a Chinese
conglomerate drew skepticism in the market that the deal would get
done, even as some state regulators are privately embracing the
possible acquisition, according to people familiar with the
matter.
Richmond, Va.-based insurer Genworth has struggled under
mounting costs of older long-term-care policies, which have
generous provisions for paying nursing homes, other facilities and
personal aides for older people. Separate to the deal, Genworth on
Sunday announced the latest in a series of charges to bolster
reserves, with regulators viewing the acquisition as a potential
lifeline for the firm.
In addition to agreeing to be acquired for $2.7 billion,
Genworth also will receive a cash injection of $1.1 billion as part
of the deal.
Executives of Genworth, which also sells mortgage insurance, and
its acquirer, China Oceanwide Holdings Group Co., began meeting
with insurance regulators several months ago to discuss ways to
structure a deal to improve odds of approval, according to
Genworth's chief executive and the people familiar with the
matter.
Some of those regulators, who would have to contend with a firm
failure, should it ever occur, believe the deal would be a good
solution for Genworth, according to people familiar with their
thinking.
China Oceanwide "has been working very closely with the
regulators and providing the kind of financial information they
want," Genworth CEO Thomas McInerney said in an interview. "I think
we've done a good job in talking with [regulators], understanding
their concerns and issues, and we've tried to structure the deal"
to address those matters.
There is no certainty the deal will be approved; representatives
of some state insurance departments where China Oceanwide must win
approval declined to comment Monday. A spokesman for Virginia's
regulator confirmed it had been in touch with Genworth, but
declined to comment further.
A person familiar with the matter confirmed that China Oceanwide
has made efforts to help state regulators understand the firm and
its suitability as an acquirer of Genworth, putting its application
for control on good footing. Regulators in Delaware, New York,
North Carolina and Virginia, as well as in Australia, Canada,
China, Mexico and officials at mortgage-finance companies Fannie
Mae and Freddie Mac must sign off on the transaction for it to be
completed. In addition, the transaction must be reviewed by the
Committee on Foreign Investment in the U.S. and similar foreign
investment review boards elsewhere.
The regulatory review process is expected to take several
months.
Despite the assurances, Genworth's shares fell more than 10% at
one point Monday, indicating some investors don't think the deal
will be completed. They finished the day's trading down 8.1% at
$4.79, below the proposed deal price of $5.43 a share.
Analysts at CreditSights cited "significant concerns that
regulators may not authorize the deal." Other analysts provided
some skepticism, noting the inability of Anbang Insurance Group Co.
to obtain approval for a $1.6 billion acquisition announced in
November 2015 for Fidelity & Guaranty Life.
Two people in the regulatory community, who declined to be
named, said the deals aren't comparable. They said Anbang hadn't
provided detailed financial information sought by New York's
Department of Financial Services about Anbang's ownership
structure, with a reticence that appears unique to Anbang.
Anbang withdrew its deal application in New York in May, two
people said.
Mr. McInerney called the China Oceanwide deal the best option to
emerge from Genworth's two-year review of strategies stemming from
its woes with long-term-care insurance.
Genworth and other long-term-care insurers have acknowledged
underpricing their older policies, with miscalculations on the
number of claims to ultimately be filed and many other items. The
business also has been hurt by continued ultralow interest rates,
as insurers invest premiums paid by customers until claims come
due. Losses on the policies have totaled more than $2 billion over
the years, according to Genworth.
There is no guarantee under the pact that China Oceanwide would
add more capital than announced in the deal if reserves prove short
in the future.
In February, S&P Global Ratings downgraded Genworth's
life-insurance units to below investment grade, citing reduced
profitability and other factors.
Genworth and China Oceanwide began talking nine months ago, Mr.
McInerney said, and reached out to regulators in the U.S. and
abroad.
Howard Mills, leader of the global insurance regulatory practice
at Deloitte LLP and a former New York insurance commissioner, said
deal approvals can get a lift if the insurer being acquired has
financial woes.
Speaking generally, he said regulators can conclude that
"improving the financial strength of a company serves
consumers."
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
October 25, 2016 00:45 ET (04:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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