Genworth, China Oceanwide To Alter Acquisition Deal

More changes are being made in Genworth Financial Inc.'s long-delayed plan to be acquired by the China-based investment firm China Oceanwide Holdings Group Co. Ltd.

Henrico County-based Genworth, an insurance company with thousands of employees in Virginia, said Wednesday that the two companies are developing a new capital structure for the deal, after failing to reach an agreement with state insurance regulators in Delaware over the fair market value of the company's business unit called Genworth Life and Annuity Insurance Co.

As a result, the two companies have decided not to pursue a planned "unstacking" of that business unit, which had been a key part of the merger deal aimed at freeing up dividends from the life insurance business for the parent company.

Instead, the two companies plan a new structure in which China Oceanwide will contribute $1.5 billion in capital to Genworth over time, giving the company flexibility to pay off debt maturing in 2020 and 2021, executives said on a conference call with industry analysts Wednesday.

China Oceanwide will make the capital contribution instead of two cash infusions it had planned to make under the original terms of the deal, including $525 million for the unstacking of the life insurance unit and $600 million to help Genworth pay debt due this month. Genworth recently completed a $450 million secured term loan to retire that debt.

The price of China Oceanwide's acquisition of Genworth remains $5.43 per share, said Thomas McInerney, Genworth's president and CEO.

In the conference call, McInerney reiterated that both companies remain committed to the deal, which was first announced in October 2016. The closing of the deal has since been delayed several times under scrutiny by various state and federal regulatory agencies.

Genworth shareholders voted to approve the acquisition in March 2017.

McInerney told analysts Wednesday that the company does not need to hold another shareholder vote to approve the new capital structure. However, the company will have to go back to state regulators in Virginia, North Carolina, New York and Delaware to get approval for the amended deal.

"I feel confident that this is still a deal that the state regulators will be very comfortable with," McInerney said.

The acquisition also remains under review by the Committee on Foreign Investment in the United States, or CFIUS, a federal interagency group that reviews acquisitions of U.S. businesses by foreign entities. The primary concern in the CFIUS review is national security, and Genworth said it has submitted a mitigation plan that would put its customers' personal data under the control of a U.S. third-party administrator.

Genworth has warned investors it cannot assure the deal will get approval. Asked on the conference call what options the company might pursue if the acquisition is rejected, McInerney said it has various options, such as asset sales to reduce debt.

"However, we really are 100 percent focused on getting this deal done, because we think it is the best - particularly for stockholders, but for all of our stakeholders," he said.

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