After more than four years, Genworth Financial Inc.’s plan to merge with a China-based company has been put on indefinite hold, in part because of the COVID-19 pandemic, though both companies said Monday that they still may be able to complete a deal.
In the meantime, Henrico County-based Genworth, an insurance company with thousands of employees in Virginia, said it is focusing on pursuing a contingency plan to pay its debts that could include a partial, initial public offering of stock for its U.S. mortgage insurance business.
Genworth and China Oceanwide Holdings Group Co. Ltd. said Monday that they have decided not to extend a deadline that had been set to expire Dec. 31 to complete the proposed acquisition of Genworth for $2.7 billion, or $5.43 per share.
Shares in Genworth plummeted nearly 29% in heavy trading to close Monday at $2.69 per share.
The deal was announced in October 2016 and was approved by Genworth’s shareholders the following March. Since then, the merger has been delayed 17 times as Genworth sought approvals from numerous state and federal insurance regulators.
Genworth sells home mortgage insurance that covers defaults on home loans as well as long-term care insurance, which covers nursing home and at-home care expenses.
The company has faced challenges in covering its costs for both businesses over the past 12 years, first because of the housing market collapse and then because of escalating expenses for long-term care.
All of Genworth’s regulatory approvals for the deal in the U.S. have been cleared, but China Oceanwide, which wants to expand Genworth’s long-term care insurance business to China, still needed to complete a financing package to close the deal.
A statement released by the companies on Monday indicated that China Oceanwide has not been able to complete a financing package. The company cited disruptions caused by the pandemic as one factor in failing to obtain the funding.
“However, the merger agreement remains in effect, although either party is able to terminate the merger agreement at any time,” Genworth said in a statement. “Oceanwide has shared that it will continue to work towards closing the transaction, and Genworth remains open to completing the transaction if Oceanwide completes the remaining steps.”
Genworth said its contingency plan includes raising capital to pay off about $1 billion in debt that the company owes this year. That could include a partial IPO for its U.S. mortgage insurance business.
“While we are disappointed that we could not close the transaction by the end of 2020, the parties retain the ability to ultimately complete the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing, and if the transaction is still in the best interests of Genworth at that time,” said Thomas J. McInerney, Genworth’s president and CEO, in a statement.
“At the same time, we are moving forward with our contingency plan to meet our near-term obligations and maximize long-term value, which we believe is the best approach for our shareholders,” McInerney said.
Genworth’s stock price dropped 28.84%, or $1.09, to $2.69 per share on the news that the deal is uncertain. Two analysts who cover the company said Monday that they now value the stock at $1.50 to $3 a share.
“If the driving factor delaying the transaction is COVID-19, it is possible that a deal can be completed at some point as vaccinations become more widespread and the pandemic subsides,” analyst Ryan Gilbert of BTIG Capital said in a note to investors. “We see a lower probability of merger completion if financing is the primary reason for the delay.”
Lu Zhiqiang, the chairman of Oceanwide, said in a statement that his company is continuing to work toward completing the transaction with Genworth.
The two companies had most recently agreed in late November to extend the deadline for the merger to the end of the year.
James Riepe, Genworth’s nonexecutive chairman, said Monday that Genworth’s board of directors believed — based on the information available in late November — that the company could close the deal in the near term.
But the board doesn’t believe that is the case now.
“Given the most recent update, we do not believe a closing can occur in the near term,” Riepe said. “Thus, the management team will fully focus its efforts on executing our contingency plan.
“We appreciate the continuing patience of our shareholders, employees and other stakeholders as we continue to pursue steps that will maximize Genworth’s value.”