What happened
Genworth Financial (NYSE: GNW) on Tuesday announced a further extension to its proposed agreement to be acquired by China Oceanwide Holdings, the 15th time the two parties have extended the deadline to complete a deal originally announced in 2016. But the extension also sets the terms for the cancellation of The agreement, The major shares of the insurance company fell 25% at the open on Tuesday.
So what
The China Oceanwide/Genworth saga has rivaled a bad sitcom romance, but after nearly four years of drama, it looks like we might finally be heading to a conclusion. In October 2016, China Oceanwide announced its intention to acquire the former General Electric subsidiary for $2.7 billion, but regulatory hurdles and other issues complicated efforts to close the deal.
Image source: Getty Images.
Genworth said Tuesday that the deadline to close the deal had been extended to Sept. 30, giving Oceanwide more time to finalize the financing. Due to the delay, Genworth said it would take steps to meet short-term financial obligations.
For the merger to stay in place, Oceanwide must provide proof by August 31 that it can secure the $1 billion in financing it needs to complete the deal. In the absence of such proof, Genworth has the right to terminate the transaction.
Now what
Genworth is also planning what steps it will take to raise funds and meet its obligations if the deal fails. The company said it expects those moves to include a debt offering, as well as arranging the sale of a 19.9% stake in its U.S. mortgage insurance business. through an initial public offering.
If the deal can be completed, there is a significant shareholder benefit. Genworth shares are currently trading at less than $2 each, well below the offering price of $5.43 per share. That’s a pretty clear indication that investors aren’t expecting a happy ending.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.
