Genworth Financial Inc (GNW) shares were 5% lower Monday morning after the provider of mortgage insurance products entered into a definitive agreement to be acquired by China Oceanwide in a transaction valued at $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 reported preliminary charges unrelated to this transaction of $535 million – $625 million after-tax associated with long term care insurance (LTC) claim reserves and taxes. 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 million – $325 million primarily related to deferred tax assets that are not expected to be utilized before their expiration.
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 said it believes this transaction is the best strategic alternative to maximize stockholder value.