The long-delayed tie-up between Genworth Financial Inc. and China Oceanwide Holdings Group Co. Ltd. is likely to miss another deadline , in part because of a dispute over the value of one of Genworth's subsidiaries.
The delay could result in the parties again extending the merger deadline, currently set for April 1, changing the terms of the deal or even abandoning it altogether.
A conflict in Delaware over the valuation of a subsidiary China Oceanwide is purchasing from under Genworth's long-term care insurance subsidiary has delayed the closing of the deal, and there are no indications a resolution is in sight.
Outside experts hired by the Delaware Department of Insurance are valuing Genworth Life & Annuity Insurance Co. or GLAIC, at almost $1 billion, according to a source. GLAIC is being unstacked from under the Genworth Life Insurance Co., or GLIC, long-term care entity.
Genworth stated in a Form 10-K filed Feb. 28 that the Delaware regulators placed a value on the unit that is higher than the $700 million pricetag Genworth assigned it. "We continue to discuss this valuation difference with the Delaware insurance regulator in order to move forward with the approval process," the company wrote.
The value that outside experts put on GLAIC is about $250 million more than what Genworth has placed on it, based on information from a source. China Oceanwide, however, does not seem likely to bridge that gap. The Chinese company has "expressed no intention to contribute additional capital to support our legacy long-term care insurance business," Genworth said in its 10-K.
If Genworth cannot provide funds and the two sides remain at loggerheads, it is possible that the deal's per-offer price of $5.43 could be cut by perhaps 50 cents to make up the difference, according to another source who was speculating on the matter.
Genworth's price of about $700 million is based on the valuation the company received while shopping the unit around in 2015 and an update with suitors in 2016, President and CEO Thomas McInerney said on a February earnings conference call.
The companies have already extended their merger agreement twice as they continue to await regulatory approvals.
Crucial approvals still needed in the U.S. include the Committee on Foreign Investment in the U.S. or CFIUS, the Delaware state regulator and the New York Department of Financial Services. The companies again refiled their joint voluntary notice with CFIUS after previous withdrawals and refilings, Genworth announced Feb. 6, kickstarting a 30 day review period followed by a potential 45-day investigation period. This time, the companies filed their application with a data risk mitigation proposal involving a third-party service provider to help allay CFIUS concerns.
While CFIUS and the New York regulator could conceivably give their assents this month, such an approval before April 1 is almost impossible from Delaware, even if the valuation issue is worked out this week, due to a statutorily required timetable. Once Delaware's department decides that the companies have a complete application and have satisfied the state's concerns, which include solvency of Genworth's long-term care company, the department is required to hold a public hearing which must be preceded by at least 20 days notice. With the calendar now more than a week through the month of March, there is a slim and rapidly diminishing chance that the deal could be approved by April 1, even if the companies and the Delaware regulator rapidly smooth over their differences.
Delaware's insurance regulator, Genworth and China Oceanwide did not provide comment for this article.
