The buyout of Genworth Financial Inc (NYSE:GNW) by China Oceanwide Holdings, a Chinese investment firm has raised so much uncertainty within the market. The leading carrier in U.S. long-term-care insurance has been experiencing a financial crisis, despite being one of the nation’s biggest sellers of mortgage insurance. It has been hit hard by waves of homeowner defaults on mortgages, which were followed by foreclosures. At the same time, the company’s sales of traditional life and individual annuities also fell, putting a dent in its performance.
Apparently, the deal, which will cost approximately $2.7 billion, has received massive support from state regulators despite all the concerns and the woes surrounding it. The company has been so aggressive in the U.S. commercial real estate sectors not only in Hawaii and New York but also in California.
But it’s not only about a buyout: China Oceanwide will go an extra mile
The duo’s transaction is subject to approval by Genworth’s stockholders and other regulatory bodies. However, China Oceanwide, which is a privately held, family international financial business, will not rest at buying out China Oceanwide. It will also contribute not less than $600 million of cash to help in addressing Genworth’s debt, which is maturing in 2018. In addition to the $175 million of cash given out by Genworth to the U.S. life insurance businesses, China Oceanwide will also provide $525 million of cash to the firm.
The anticipation is that China Oceanwide’s involvement in this new transaction is that it will avert any negative impact on Genworth’s financial flexibility. The transaction is perhaps the best option of maximizing stockholder value. According to Genworth CEO, Thomas McInerney, the deal will help in restructuring the company’s concerns and issues. Reliable sources further state that China Oceanwide has done everything possible to make the regulators understand that it is suitable enough to acquire Genworth. Nonetheless, the regulatory review process takes a couple of months.
Concerns that regulator may not authorize the deal
There speculations by various groups of analysts that regulators may not approve this deal. According to Howard Mills a global insurance regulatory expert at Deloitte LLP says that the deal may not be all smooth the insurer being acquired has financial afflictions. Earlier on, Genworth’s life insurance units were downgraded by downgraded alleging that they were below the investment grade, which was linked to reduced profitability.
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