RICHMOND, Va. and BEIJING – China Oceanwide Holdings Group Co., Ltd. (“China Oceanwide”) and Genworth Financial, Inc. (NYSE: GNW) (“Genworth”) announced Oct. 23 that they have entered into a definitive agreement under which China Oceanwide has agreed to acquire all of the outstanding shares of Genworth 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. Ltd., one of China Oceanwide’s investment platforms. The transaction is subject to approval by Genworth’s stockholders as well as other closing conditions, including the receipt of required regulatory approvals.
As part of the transaction, China Oceanwide has additionally committed to contribute to Genworth $600 million of cash to address the debt maturing in 2018, on or before its maturity, as well as $525 million of cash to the U.S. life insurance businesses. This contribution is in addition to $175 million of cash previously committed by Genworth Holdings, Inc. to the U.S. life insurance businesses. Separately, Genworth also announced today preliminary charges unrelated to this transaction of $535 to $625 million after-tax associated with long term care insurance (LTC) claim reserves and taxes. Those items are detailed in a separate press release. The China Oceanwide transaction 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.
James Riepe, non-executive chairman of the Genworth Board of Directors said, “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. The Board is confident that the sale of the company to China Oceanwide is the best path forward for Genworth’s stockholders.”
Upon the completion of the transaction, Genworth will be a standalone subsidiary of China Oceanwide and Genworth’s senior management team will continue to lead the business from its current headquarters in Richmond, Virginia. Genworth 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.
China Oceanwide is a privately held, family owned international financial holding group founded by Mr. Lu Zhiqiang. Headquartered in Beijing, China, China Oceanwide’s well-established and diversified businesses include operations in financial services, energy, culture and media, and real estate assets globally, including in the United States. 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,” added Mr. Lu, 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. 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 (GLAIC) from under Genworth Life Insurance Company (GLIC) and address its 2018 debt maturity. 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.”
Tom McInerney, President & Chief Executive Officer of Genworth concluded, “We believe that this transaction creates greater and more certain stockholder value than our current business plan or other strategic alternatives, and is in the best interests of Genworth’s stockholders. China Oceanwide is an ideal owner for Genworth going forward. They recognize the strength of our mortgage insurance platform and the importance of long term care insurance in addressing an aging population. The capital commitment from China Oceanwide will strengthen our business and increase the likelihood of obtaining regulatory approval.”Genworth will continue to focus on its key financial priorities, including strengthening the balance sheet and stabilizing and improving ratings over time, particularly in its U.S. MI business. Genworth will also continue to focus on its key operational priorities, most notably executing its multi-year LTC rate action plan, which is essential to stabilizing the financial position of the legacy LTC business. China Oceanwide has no current intention or future obligation to contribute additional capital to support Genworth’s legacy LTC business.
The transaction, which has been approved by both companies’ boards of directors, is expected to close by the middle of 2017, subject to the requisite approval by Genworth’s stockholders as well as certain other closing conditions, including the receipt of regulatory approvals. Both China Oceanwide and Genworth have initiated discussions with regulators in key jurisdictions.
Goldman, Sachs & Co. and Lazard are acting as financial advisors to Genworth. Willkie, Farr & Gallagher LLP and Weil, Gotshal & Manges LLP are acting as legal advisors to Genworth, and Richards, Layton & Finger is acting as legal advisor to the Genworth Board of Directors. Citi and Willis Capital Markets & Advisory are acting as financial advisors to China Oceanwide and Sullivan & Cromwell and Potter Anderson & Corroon LLP are acting as legal advisors to China Oceanwide.
Conference call and supplemental information
Genworth conducted a 30-minute conference call on October 24, 2016 at 8 a.m. (ET) to discuss the transaction. Replays of the call are available through November 7, 2016 at 888 203.1112 or 719 457.0820 (outside the U.S.); conference ID # 7989168. The webcast will also be archived on Genworth’s website.
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Genworth announces preliminary charges for 3rd Quarter
Genworth announced Oct. 23 preliminary charges for the third quarter of 2016. During the quarter, the company completed its annual review of assumptions and methodologies related to its LTC claim reserves. Based on this review, which included an additional year of claims experience since the last annual review in the third quarter of 2015, the company updated several assumptions and methodologies related to LTC claim reserves. The updates included the following:
• Reflected differences in claim termination rate assumptions between product types and daily benefit amounts;
• Reduced claim termination rate assumptions for longer duration claims for certain product types;
• Modestly refined utilization rate assumptions; and
• Refined methodology primarily related to the calculation of incurred but not reported reserves to better reflect the aging of the block.
As a result of this review, the company expects to increase LTC claim reserves by approximately $400 to $450 million pre-tax resulting in an after-tax charge to earnings of $260 to $300 million for the third quarter. These results are currently being reviewed both internally and by a third party actuarial firm. The final results will be released in conjunction with the company’s release of its third quarter results.
Additionally, the company anticipates the updated claim reserves assumptions will impact its margins. The company expects that future rate action plans and other management actions will help mitigate the anticipated impact. The net impact on margins is not known at this time, as the analysis and work will be completed in the fourth quarter.
In light of the company’s latest financial projections, including the projected impact to current and future earnings associated with higher expected claim costs in LTC and sustained low interest rates, the company also expects to record a non-cash charge of $275 to $325 million primarily related to deferred tax assets that are not expected to be utilized before their expiration.
About Genworth Financial: Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance holding company committed to helping families achieve the dream of homeownership and address the financial challenges of aging through its leadership positions in mortgage insurance and long term care insurance. Headquartered in Richmond, Va., Genworth traces its roots back to 1871 and became a public company in 2004. For more information, visitgenworth.com.
Conference Call: Genworth will conduct a 30-minute conference call on November 4, 2016 at 8 a.m. (ET) to discuss the quarter’s financial results. The conference call will be accessible via telephone and the Internet. The dial-in number for the conference call is 877 888.4034 or 913 489.5101 (outside the U.S.); conference ID # is 3198608. To participate in the call by webcast, register at http://investor.genworth.com at least 15 minutes prior to the webcast to download and install any necessary software. Replays of the call will be available through November 18, 2016 at 888 203.1112 or 719 457.0820 (outside the U.S.); conference ID # 3198608. The webcast will also be archived on the company’s website.
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